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Crestwood Midstream Partners LP (CMLP) (Crestwood) announced an agreement to acquire, from certain subsidiaries of Devon Energy Corporation (Devon), certain gathering and processing assets in the liquids-rich southwestern area of the Barnett Shale for $90 million. Additionally, Crestwood and Devon have entered into a 20 year fixed-fee gathering, processing and compression agreement under which Crestwood will gather and process Devon’s natural gas production from a 20,500 acre dedication. Current natural gas production under the agreement is approximately 95 million cubic feet per day (MMcf/d). The transaction is expected to close in the third quarter 2012, subject to customary closing conditions.
West Johnson County Assets
The assets to be acquired from Devon consist of a 74 mile low pressure natural gas gathering system, a 100 MMcf/d cryogenic processing facility and 23,100 horsepower of compression equipment located in the western portion of Johnson County, Texas. Devon’s West Johnson County pipeline system and processing plant, constructed since 2006, are located immediately adjacent to Crestwood’s Cowtown gathering system which includes two state of the art natural gas processing plants (the Cowtown plant and the Corvette plant) with a combined processing capacity of approximately 325 MMcf/d.
The Crestwood Cowtown system and the Devon West Johnson County system are currently interconnected and Crestwood has processed gas volumes from Devon’s West Johnson County system from time to time in the past. Upon closing, Crestwood is expected to consolidate the systems by increasing the system interconnect capacity with the ultimate goal to process all of Devon’s West Johnson County natural gas production in Crestwood’s Cowtown and Corvette processing plants. This integration plan is expected to result in future cost savings for Crestwood and provide Devon with lower wellhead pressures, higher natural gas liquids (NGL) recoveries and expanded market outlets.
20 Year Gathering and Processing Agreement
As part of the transaction, Crestwood and Devon have entered into a 20 year gathering, processing and compression agreement that will provide for 100% fixed-fee based revenues to Crestwood and includes a dedicated production area from Devon of approximately 20,500 acres. The West Johnson County system currently gathers from approximately 230 wells. Due to the liquids-rich quality of the natural gas production in this portion of the Barnett Shale, Devon has maintained an active drilling and development plan for the West Johnson County area in 2012 and expects to continue to further develop the dedicated properties in 2013.
“We are excited about this transaction with Devon which represents a meaningful increase in our liquids-rich operations in the Barnett Shale,” stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “The acquisition allows us to consolidate the two systems, optimize the available capacity in Crestwood’s existing high-recovery cryogenic processing plants and provides long term benefits to Devon through lower wellhead pressures, higher NGL recoveries and expanded marketing options for their natural gas and NGL production. The transaction is expected to be immediately accretive to Crestwood and allows us the option of leaving the West Johnson County plant in place to handle future production requirements or to move it to another rich gas region such as the Marcellus/Utica, Granite Wash or Avalon Shale plays where we are currently working on new rich-gas development opportunities,” commented Phillips.
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