Rice Midstream Partners LP (NYSE: RMP) has acquired the water services business of Rice Energy Inc.'s (NYSE: RICE) wholly owned subsidiary, Rice Midstream Holdings LLC, for $200 million at closing plus a $25 million earn out to be paid upon achievement of certain increases in connected water sources.
This acquisition includes Rice Midstream Holdings' Pennsylvania and Ohio freshwater distribution systems and related facilities, as well as a right to provide fresh water for well completion operations and to collect, recycle, or dispose of flowback and produced water for Rice in Washington and Greene counties, Pennsylvania, and Belmont County, Ohio (the services area). In addition, RMP has been given the exclusive right to acquire and/or develop water treatment facilities in the services area. Finally, RMP priced a private placement of 13,409,961 common units for gross proceeds of $175 million and announced increased 2015 guidance.
RMP funded the purchase price through borrowings under its revolving credit facility. Upon completion of the Partnership's private placement of common units described below, the $175 million of gross proceeds will be used to repay a portion of borrowings outstanding under RMP's revolving credit facility. Pro forma for the acquisition and the consummation of the private placement of common units, and assuming no earn out payment, RMP's liquidity position as of Sept. 30 was $369 million, consisting of $350 million available under its revolving credit facility and $19 million of cash on hand.
In connection with the Partnership's water services business acquisition, RMP entered into amended and restated water services agreements with Rice. RMP has agreed to provide certain fluid handling services to Rice, including the exclusive right to provide fresh water for well completions operations in the Marcellus and Utica shale plays and to collect, recycle, or dispose of flowback and produced water for Rice within the services area. The initial term of the water services agreements is until Dec. 22, 2029, and from month to month thereafter. Under the agreement and according to the tiered structure below, Rice will pay a variable fee, based on volumes of water supplied, for freshwater deliveries by pipeline directly to the wellsite, subject to annual CPI adjustments, and a produced water handling fee of actual out-of-pocket cost incurred, plus a 2% margin.
Simmons & Company International served as exclusive financial advisor to the conflicts committee and provided a fairness opinion for the drop-down transaction. Akin Gump Strauss Hauer & Feld LLP served as legal counsel to the conflicts committee. Vinson & Elkins LLP served as legal counsel to Rice Energy.