Williams Companies and the Canada Pension Plan Investment Board (CPPIB) are forming a $3.8-billion joint venture (JV) that will operate midstream assets in the western Marcellus and Utica basins.
The JV will own 100% of the Ohio Valley Midstream system (OVM) and Utica East Ohio Midstream system (UEO). Williams currently owns 100% of the OVM and just closed on the purchase of the remaining 38% stake in UEO from Momentum Midstream.
CPPIB is contributing $1.34 billion, subject to closing adjustments, for a 35% stake in the combination. Williams will hold 65% and operate the JV. The deal is expected to close around mid-year.
The moves create “a platform for continued optimization and growth, provide deleveraging, reduce capital spending on processing and fractionation capacity for OVM, and unlock further synergies through combined operatorship of the systems,” said Alan Armstrong, Williams president and chief executive officer, in a news release.
CPPIB, Canada’s largest pension fund, financially backs Utica operator Encino Energy, which last year acquired Chesapeake Energy’s Utica assets for $2 billion. That deal gave Encino more than 900,000 net acres spanning the play’s condensate, liquids-rich, and dry gas windows along with 600 MMcf/D of gas equivalent production.
Encino is an anchor customer of UEO, which encompasses 1 Bcf/D of cryogenic gas processing capacity at the Kensington and Leesville plant sites, gas and NGL gathering lines, as well as fractionation, condensate stabilization, storage, and a rail and truck terminal. OVM includes a gathering system and processing facility, and construction is under way on fractionation and additional processing facilities.
“This joint venture will provide CPPIB additional exposure to the attractive North American natural gas market, aligning with our growing focus on energy transition,” said Avik Dey, CPPIB managing director and head of energy and resources. Encino entered the North American upstream sector in 2015 when it acquired Calgary-based Encana’s DJ Basin assets in Colorado.
Williams said it plans to use the cash it receives from CPPIB to offset the cost of the UEO acquisition. The JV excludes Williams’ ownership interests in Flint Gathering, Cardinal Gathering, Marcellus South Gathering, Laurel Mountain Midstream, and Blue Racer Midstream.