Source: Magnum Hunter Resources
Magnum Hunter Resources Corporation (NYSE:MHR) announced that a wholly-owned subsidiary, Eureka Hunter Pipeline, and DCP Midstream Partners, LP (NYSE:DPM) have entered into a Letter of Intent to create a natural gas gathering joint venture for the gathering of natural gas in West Virginia and Ohio.
Proposed JV Terms
The proposed Gathering JV will construct, own and operate certain natural gas gathering assets for natural gas produced in Western West Virginia and Eastern Ohio. Magnum Hunter and DCP will each own 50 percent of the proposed Gathering JV. The estimated total construction cost to complete the initial gathering pipeline facilities is approximately $35 million, with Magnum Hunter funding approximately $12.5 million of that amount and DCP funding approximately $22.5 million. Terms for the Gathering JV also include a $5 million payment by DCP to Magnum Hunter at closing for certain rights of way that are being contributed by the Company and are in excess of the initial gathering pipeline project.
Once the initial facility is constructed, the two JV partners plan to fund the Gathering JV's future capital requirements for expansion facilities on a 50/50 cost basis. Closing of the proposed joint venture, which is expected to occur during the fourth quarter of 2010, is subject to the negotiation, execution and board approval of definitive documentation and receipt of customary third party consents and approvals.
Magnum Hunter, through its wholly-owned subsidiary, Triad Hunter LLC, owns over 88,000 net mineral acres in Ohio, West Virginia and Kentucky, including approximately 42,000 net acres of prospective Marcellus Shale acreage located in northwestern West Virginia. The Company has identified over 25 horizontal drilling locations across its prospective Marcellus Shale acreage position. Magnum Hunter has recently completed drilling the vertical portions of its first two Marcellus Shale wells (100% Working Interest), the Weese Hunter #1001 and #1002, located in Tyler County, West Virginia. A third party drilling rig has recently begun drilling the lateral sections of both wells.
The gas gathering capacity of the initial facilities constructed by the Gathering JV will be approximately 200 million cubic feet of gas per day. The initial facilities are expected to begin gathering approximately in the 20 to 30 million cubic feet of gas per day range in fourth quarter of this year. This first phase of the system will allow Magnum Hunter to flow natural gas discovered in both the Weese Hunter #1001 and #1002 wells immediately to sales via a tap to Dominion Field Services, and will provide gas gathering services to third party natural gas producers in the vicinity where gas is currently shut-in due to limited pipeline infrastructure.