MSI, Magnum Hunter team up in midstream asset

Morgan Stanley Infrastructure (MSI), the infrastructure investment and management platform of the Wall Street investment bank, has entered into a strategic partnership with Magnum Hunter Resources to acquire in stages co-ownership of Eureka Hunter Holdings, a natural gas gathering system in the Marcellus and Utica shale basins, MSI and Magnum Hunter said in separate statements.

Located in two of the most prolific unconventional shale plays in North America, the Eureka Hunter gathering system comprises a network of pipelines to transport dry and wet gas from wellheads to long-haul pipelines and processing plants. The system currently has more than 100 miles of pipeline in Ohio and West Virginia, with an additional 50 miles under construction and scheduled to be completed this year.

The transaction includes a separate purchase agreement whereby Morgan Stanley will acquire all the convertible preferred and common equity interests in Eureka Hunter from Ridgeline Midstream Holdings, an affiliate of US fund manager ArcLight Capital Partners. Once this transaction closes, which is expected to occur in early October, MSI, Magnum Hunter and the other minority interest owners of Eureka Hunter will enter into a new limited liability company agreement.

At the same time, all of the preferred equity interests acquired by MSI from Ridgeline Midstream will be converted into common equity interests, while all common equity owned by MSI will have a liquidation preference, according to Magnum Hunter’s statement.

Financial details of the transaction were not disclosed by either company.

Through a second transaction, expected to close in January 2015, Magnum Hunter will sell an additional 6.5 percent of the total common equity interest in Eureka Hunter to MSI for approximately $65 million, valuing Eureka Hunter at roughly $1 billion.

Once both transactions are completed, and with follow-on contributions expected to be made by MSI in 2014, the two companies will own equal parts totaling 98 percent of Eureka Hunter.

According to Morgan Stanley, MSI will also begin a broader partnership with Magnum Hunter aimed at expanding operations, growing the customer base and securing additional build-out opportunities.

Based in Houston, Texas, Magnum Hunter is an independent exploration and production company active in the acquisition, development and production of crude oil, natural gas and natural gas liquids, primarily in the states of West Virginia, Ohio and North Dakota.

MSI, part of Morgan Stanley Investment Management, invests in and manages diverse assets covering 12 sectors in eight countries. It invests in sectors such as transportation, energy and utilities, communications and social infrastructure through its teams in North America, Europe and Asia.