December 2013, Vol. 240 No. 12

Features

Crestwood Expands Bakken Footprint With Arrow Acquisition

Crestwood Midstream Partners increased its sizable holdings in the Bakken Shale with the acquisition of Arrow Midstream Holdings. The move, a continuation of its liquids-focused strategy, will allow Crestwood to service about 18% of current Bakken crude oil production.

The $750 million transaction is expected to close by year’s end and comes on the heels of the merger of Houston-based Crestwood and Inergy Midstream, of Kansas City, MO, which was completed Oct. 7.

Arrow, through its subsidiaries, owns and operates substantial crude oil, natural gas and water gathering systems located on the Fort Berthold Indian Reservation at the heart of the Bakken Shale in McKenzie and Dunn counties of North Dakota.

The system consists of more than 460 miles of gathering pipeline, including 150 miles of crude oil gathering pipeline, 160 miles of natural gas gathering pipeline, and 150 miles of water gathering lines. Volumes on the system are about 50,000 bpd of crude oil, 15 MMcf/d of rich natural gas and 8,500 bpd of water.

Additionally, Crestwood’s new assets include salt water disposal wells and a 23-acre central delivery point (CDP) with multiple pipeline take-away outlets and a fully automated truck loading facility.

“Because of the early integration efforts of Crestwood and Inergy’s commercial, operations and back-office teams in advance of the merger, the addition of the Arrow assets and operations will effectively be like a bolt-on acquisition,” said Robert G. Phillips, chairman of Crestwood’s general partner.

The Arrow gathering systems are anchored by long-term, primarily fee-based, gathering contracts with blue-chip producers who have dedicated over 150,000 acres to Arrow, including more than 1,000 potential drilling locations on the acreage.

The contracts provide for fixed-fee gathering services with annual escalators for crude, natural gas and water gathering services, according to Crestwood. There are currently eight drilling rigs running in the area of dedication with additional rig activity in areas adjacent to the system.

Arrow’s systems are located 60 miles southeast of Crestwood’s COLT Hub crude rail and pipeline terminal, located in Williams County. The assets have direct connectivity with COLT through the Hiland and Tesoro crude oil pipeline systems.

The COLT Hub is one of the Bakken’s leading rail transportation avenues for East Coast and West Coast markets with loading capacity being expanded to 160,000 bpd. Crestwood said many of its largest customers at COLT are also major purchasers of crude oil at the Arrow CDP.

The acquisition is expected to be immediately accretive to Crestwood’s estimated distributable cash flow per limited partner unit in 2014, with growing accretion thereafter based upon projected production increases from the Arrow assets.

Nationwide, Crestwood will now handle over 470,000 bpd of crude oil and NGLs in addition to over 2.0 Bbpd of natural gas through its gathering systems and transportation assets.

The separate merger of Crestwood and Inergy, valued at $7 billion, created a diverse platform of midstream assets in the premier shale plays in North America, including the Marcellus, Bakken, Eagle Ford, Permian, Powder River, Niobrara, Utica, Barnett, Fayetteville, Granite Wash, Haynesville and Monterey.

Executive appointments announced as part of the merger were Heath Deneke, president, Natural Gas Business Unit; Bill Gautreaux, president, Liquids and Crude Business Unit; Mike Campbell, senior vice president and chief financial officer; Steven Dougherty, senior vice president and chief accounting officer; Joel Lambert, senior vice president, general counsel and corporate secretary; Will Moore, senior vice president, strategy and corporate development; and Joel Moxley, senior vice president, operations services.