HOUSTON, June 24, 2013 /PRNewswire/ -- Crestwood Midstream Partners LP (NYSE: CMLP) ("Crestwood" or the "Partnership") today announced that its subsidiary, Crestwood Niobrara LLC ("Crestwood Niobrara"), has entered into an agreement to acquire a 50% interest in Jackalope Gas Gathering Services, L.L.C. ("Jackalope") from RKI Exploration & Production, LLC ("RKI") for approximately $108 million. RKI is a privately-owned, independent exploration and production company focused in the Powder River, Permian and Denver-Julesberg Basins in which First Reserve owns a significant minority ownership position. First Reserve is a premier energy-focused private equity firm that is also Crestwood's indirect general partner and largest common unit holder. The Jackalope gathering and processing system ("Jackalope System"), located in Converse County, Wyoming, provides Crestwood with an early-stage entrance into the emerging Powder River Basin Niobrara Shale play and positions Crestwood for significant future infrastructure development opportunities across the rich gas and crude oil midstream value chain. The acquisition is expected to close during the third quarter of 2013, subject to customary regulatory approvals.
The other 50% interest in Jackalope is owned by Access Midstream Partners, L.P. ("Access"), which acquired its interest in Jackalope in December 2012 from Chesapeake Energy Corporation ("Chesapeake"). As a part of this transaction, Access will continue to provide field operations and construction management for Jackalope and Crestwood will assume the commercial development role for the joint venture.
Chesapeake and RKI have collectively accumulated the largest acreage block in the Powder River Basin play, spanning over 750,000 acres, and are aggressively developing the acreage under a joint development agreement. The Jackalope System is being developed to gather and process rich natural gas produced from a 311,000 acre area of dedication in Converse County where RKI and Chesapeake have focused the majority of their drilling activity to date. The Jackalope System is currently composed of approximately 100 miles of gathering pipelines and 9,400 horsepower of compression equipment with near-term plans to install a new gas processing facility and continued expansion of the gas gathering system. The existing assets and future development are supported by a 20-year gathering and processing agreement with Chesapeake and RKI under which Jackalope receives cost-of-service based fees with annual redeterminations that provide for an attractive rate of return on invested capital.
"As we announced last year, Crestwood has been focusing its development efforts on rich gas plays such as the Powder River Basin Niobrara Shale," stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood's general partner. "This transaction is an important next step in the development of that strategy and positions Crestwood in a growing play with an experienced midstream partner supported by a long-term contract and large acreage dedication being developed by very capable shale producers."The Jackalope System, while in its early build-out stage, provides significant visibility to cash flow growth as midstream infrastructure is expanded to support Chesapeake and RKI's aggressive development plans. With approximately 10 drilling rigs currently running in the area, a 20-year cost-of-service midstream contract, and more than 1,000 estimated drilling locations in the current acreage dedication, we believe this investment has the potential to be another great, high-growth shale play like our Marcellus position."