Gulfport Energy Corp. (NASDAQ: GPOR) has executed a letter of intent (the agreement) with Rice Midstream Holdings LLC (Rice), a wholly owned subsidiary of Rice Energy Inc. (NYSE: RICE), to form a midstream joint venture (JV) to develop natural gas gathering and water services assets to support Gulfport’s dry gas Utica shale development in eastern Belmont and Monroe counties, Ohio. The JV will be supported by long-term, fee-based service agreements with Gulfport.
Gulfport will own 25% of the JV and Rice will own the remaining 75% of the JV. Rice will be responsible for constructing and operating the JV’s assets:
- A dry gas gathering system with capacity to gather over 1.8 MMDth/d of natural gas consisting of 165 miles of high- and low-pressure 12-in. to 30-in. gathering pipelines with multiple interconnections to interstate pipelines including Rockies Express, ET Rover, TETCO, and Dominion East Ohio
- Approximately 50,000 horsepower of compression for gathering and delivery into various downstream interstate pipelines
- A freshwater distribution system designed to deliver fresh water to pads for completion activities
Under the terms of the agreement, Gulfport will dedicate approximately 77,000 leasehold acres, including the acreage recently acquired in its Paloma Partners III LLC and American Energy – Utica LLC transactions. In addition, Gulfport will also contribute to the JV an existing 11-mile gas gathering pipeline and a 350-MDth/d TETCO interconnect, which are both located in Monroe County.
Gulfport and Rice plan to invest $520 million to develop gathering and compression assets and $120 million for water assets within the JV over the next six years. Each partner will fund its proportionate share of the total capital investments. Initial construction of the system is expected to begin immediately and first deliveries are planned for the middle of 2016.
Under the terms of the agreement, Gulfport will have the right to participate on a proportionate basis (or “tag-along”) in any direct or indirect sale transactions by Rice, which includes potential drop-down transactions with Rice Midstream Partners LP.