Summit Midstream Partners, LP (NYSE: SMLP) today announced that its wholly owned subsidiary, Grand River Gathering, LLC ("Grand River"), has closed the previously announced acquisition of Red Rock Gathering Company, LLC ("Red Rock") from a subsidiary of Summit Midstream Partners, LLC ("Summit Investments") for total cash consideration of $305.0 million, subject to customary working capital adjustments. The Red Rock drop down was financed with the net proceeds from SMLP's primary equity offering of 5.3 million common units and borrowings under SMLP's revolving credit facility.
Red Rock is a natural gas gathering and processing system located in the Piceance Basin in western Colorado and eastern Utah with approximately 1,480 miles of low-pressure and high-pressure pipeline, 54,000 horsepower of compression and two processing plants with 50 MMcf/d of processing capacity. The Red Rock system gathers and processes natural gas, primarily under fee-based contracts, for more than 55 producer customers. Natural gas on the Red Rock system interconnects with downstream pipelines serving Enterprise Products Partners L.P.'s ("Enterprise") Meeker Natural Gas Processing Plant, Williams Partners L.P.'s Northwest Pipeline system, and Kinder Morgan Energy Partners L.P.'s TransColorado Pipeline system. Processed natural gas liquids from the Red Rock system are injected into Enterprise's Mid-America Pipeline system.
Red Rock's largest customers include subsidiaries of WPX Energy, Inc., Encana Corporation, Noble Energy, Inc., Black Hills Corporation, Piceance Energy LLC, and Ursa Resources Group II LLC. For the year ended December 31, 2013, volume throughput on the Red Rock system averaged 148 MMcf/d and more than 80.0% of its revenue was generated from fee-based services.
Pro forma for the Red Rock drop down, SMLP will continue to generate more than 90.0% of its revenue under long-term, fee-based contracts and will have over 4.2 Tcf of minimum volume commitments through 2026.
The terms of the Red Rock drop down transaction were approved by the board of directors of SMLP's general partner and by the board's conflicts committee, which consists entirely of independent directors. The conflicts committee engaged Evercore Partners to act as its independent financial advisor and to render a fairness opinion, and Akin Gump Strauss Hauer & Feld, LLP acted as its legal advisor.
Because of the common control aspects in a drop down transaction, the Red Rock acquisition is deemed a transaction between entities under common control and, as such, will be accounted for on an "as if pooled" basis for all periods in which common control existed. As a result, SMLP's financial results will retrospectively include Red Rock's financial results for all periods ending after October 23, 2012.