GIP in $588m midstream gas investment

$5.64 billion infrastructure fund Global Infrastructure Partners (GIP) has entered into a joint venture which will see it invest $588 million in the midstream gas sector.

GIP has signed an agreement with US natural gas producer Chesapeake Energy to form a new midstream natural gas gathering joint venture called Chesapeake Midstream Partners (CMP).

GIP will pay Chesapeake $588 million for a 50 percent stake in the new company. Chesapeake is to retain the remaining 50 percent state in CMP, which will own all of Chesapeake’s natural gas gathering assets in the Barnett Shale and the Arkoma, Anadarko, Delaware and Permian Basins.

CMP will enter into a number of agreements with Chesapeake, including in relation to long-term gas gathering. Chesapeake said in a statement the new entity will focus on unregulated business with both Chesapeake and third-party natural gas producers. Its revenues are expected to largely derive from fixed-fee based arrangements for gathering, compression, dehydration and treating services.

Chesapeake is also to provide CMP with a ten-year minimum volume commitment.

GIP partner Matthew Harris led the transaction for the fund. “The creation of this new joint venture will provide important services to Chesapeake and will create a platform for growth in these significant natural gas producing regions. Furthermore, the volumes committed under the long-term gathering agreement provide a strong foundation of fee-based revenue for the new joint venture,” said Harris of the venture.

Chesapeake’s senior vice president for natural gas J. Mike Stice will serve as CMP’s CEO.

In addition to GIP’s funding of the joint venture, CMP is to close a $500 million secured revolving bank credit facility maturing in 2012. CMP will use this facility partly to fund capital expenditure on natural gas gathering systems.

GIP was advised on the transaction by Credit Suisse Securities (USA), while UBS advised Chesapeake.

In July GIP formed a joint venture with natural gas transporter El Paso Corporation to build a 675-mile natural gas pipeline in the Western US. The infrastructure fund is investing $700 million in this project, the Ruby Pipeline, for a 50 percent stake.