Phillips 66 Partners and Paradigm form midstream logistics JVs

Phillips 66 Partners LP and Paradigm Energy Partners LLC

Phillips 66 Partners LP (NYSE:PSXP) and Paradigm Energy Partners LLC have executed agreements to form two joint ventures to develop midstream logistics infrastructure in North Dakota. Consisting of two previously announced projects, the Sacagawea Pipeline (the “Pipeline JV”) and Palermo Rail Terminal (the “Rail JV”), the joint ventures are designed to enhance logistical options for crude oil transportation in the Bakken region.

The Pipeline JV will own an 88% ownership interest in Sacagawea Pipeline LLC, with the remaining 12% interest to be owned by Grey Wolf Midstream LLC. Additionally, the Pipeline JV will own and construct a crude oil storage terminal and central delivery point for various crude gathering systems located in Keene, North Dakota (the “Paradigm CDP”). The Sacagawea Pipeline project is a 76-mile pipeline being developed to deliver crude oil from various points in and around Johnson's Corner and the Paradigm CDP, located in McKenzie County, to destinations with takeaway options for both rail and pipeline in Palermo and Stanley, located in Mountrail County. In October, Paradigm recently extended an open season for the pipeline, which is expected to close on Dec. 15.

Under the terms of the Pipeline JV agreement, Phillips 66 Partners and Paradigm will each own a 50% interest in the joint venture and will fund their proportionate share of the construction costs. Paradigm will construct the pipeline and Phillips 66 Partners will be the operator.

The Rail JV will own the Palermo Rail Terminal. Located on a 710-acre site in Palermo, the crude oil rail-loading facility is designed to have an initial capacity of 100,000 barrels per day, with the flexibility to be expanded to 200,000 barrels per day. The terminal will have direct access to the Sacagawea Pipeline and provide East and West Coast rail access for third-party shippers through the BNSF railway.

Under the terms of the Rail JV agreement, Phillips 66 Partners will own between a 50% to 70% interest with Paradigm’s ownership percentage subject to the achievement of certain milestones associated with the Pipeline JV. Final ownership interests will be determined before closing, and each party will fund their proportionate share of the construction costs. Phillips 66 Partners will construct and operate the rail terminal.

The transactions are expected to close in the fourth quarter of 2014 with total capital cost for the joint ventures estimated to be $300 million, subject to the terms set forth in the final agreements. Both the pipeline and rail terminal are expected to commence commercial operations in the first quarter of 2016.

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