abarrelfullabarrelfull wrote on 29 Dec 2011 08:46
Tags: canada kkr midstream pipeline quicksilver

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Quicksilver Resources Inc. (NYSE: KWK), through wholly-owned subsidiaries, and Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, “KKR”) announced today the formation of a new midstream partnership dedicated to the construction and operation of natural gas midstream services to support producer customers in British Columbia and the Northwest Territories of Canada.

Transaction Highlights:

  • Quicksilver contributed its existing 20-mile, 20-inch gathering line and compression facilities and 10-year contracts for gas deliveries into those facilities to create the partnership
  • KKR paid $125 million to Quicksilver in exchange for a 50% interest in the partnership
  • KKR will carry Quicksilver on its portion of future development costs on the initial treating facility in exchange for preferential distributions to KKR
  • It is anticipated that the planned treating facility will lower Quicksilver’s cost to get its produced natural gas to market by roughly $0.80 per Mcf compared to its current alternative
  • Quicksilver will be the operator of the partnership
  • The companies will jointly build and operate natural gas gathering, transportation and processing infrastructure to maximize the value of the production stream from Quicksilver’s development in the Horn River Basin
  • Quicksilver dedicates current and future production from its Horn River acreage to the partnership
  • The agreement establishes an Area of Mutual Interest (AMI) for the midstream business covering approximately 30 million potential acres in the Horn River, Liard and Cordova basins, which would include third-party transportation and processing infrastructure and agreements
  • KKR’s investment in the joint venture was sourced from KKR Financial and other KKR Asset Management pools of capital

Strategic Relationship

The creation of this midstream partnership is strategic to the continued development of the Horn River Asset for Quicksilver as it allows for an economic path to market. This is the second step in ensuring the lowest cost solution relative to current options to move Quicksilver’s gas to market. The first step was TCPL’s extension of their Alberta system to Quicksilver lands. The treating facility that KKR will fund will be at the terminus of this pipeline. This alternative enhances the return on Horn River gas by reducing the cost of processing and transporting our gas to AECO.

“With its well-established and versatile energy business, KKR is an ideal partner in creating a low-cost and reliable solution for processing and transporting natural gas produced from the Horn River Basin for Quicksilver and other producers. It will facilitate the sale of natural gas to multiple markets in North America and ultimately to export markets in Asia,” said Toby Darden, Chairman of the Board of

Quicksilver. “Moreover, the partnership structure will further strengthen our financial flexibility while reducing our expected capital requirements over the next several years.”

“KKR is excited to partner with Quicksilver to provide the capital needed to bring the substantial resources in the Horn River to market,” said Fred Goltz, a Member at KKR. “We look forward to growing our commitment to this partnership over time as the company accelerates its activity in the play.”

The wells in the Horn River Basin of British Columbia are among the most prolific of shale plays in North America. We believe recoverable reserves from Quicksilver’s acreage alone could exceed 10 trillion cubic feet (Tcf) of natural gas. According to a recent Canadian National Energy Board study, Horn River Basin reserves could exceed 75 Tcf.

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