Chesapeake to invest in Utica shale complex

Chesapeake Energy Corp. said Tuesday it plans to build a midstream complex to service the emerging Utica shale play in eastern Ohio, which has drawn interest because of its potential for producing high proportions of oil and natural gas liquids.

Analysts say they are paying close attention to development in the Utica because of the higher current value and domestic marketability of natural gas liquids when compared with dry natural gas.

Chesapeake, of Oklahoma City, plans to build the complex through one of its subsidiaries, Chesapeake Midstream Development, L.P., and in partnership with  M3 Midstream LLC and EV Energy Partners, L.P., with an initial collective investment for the project of $900 million planned over five years, according to a Chesapeake statement.

The complex will use cryogenic processing and fractionating plants to separate specific natural gas liquid products.

Chesapeake  is the largest drilling lease holder in the Utica and the nation’s second-largest producer of natural gas.

More from the Chesapeake announcement:

The complex will consist of natural gas gathering and compression facilities constructed and operated by CMD, as well as processing, NGL fractionation, loading and terminal facilities constructed and operated by Momentum. The state-of-the-art cryogenic processing facility will be located in Columbiana County and have an initial capacity of 600 million cubic feet per day. NGLs will be delivered to a central NGL hub complex in Harrison County that will feature an initial NGL storage capacity of 870,000 barrels and fractionation capacity of 90,000 barrels per day, as well as a substantial rail-loading facility.

The partnership plans to invest approximately $900 million over the next five years with the majority of the capital invested in the first two years. The current ownership structure of the partnership is 59% by affiliates of CMD, 33% by Momentum and 8% by EVEP. Total E&P USA, Inc., Chesapeake’s 25% joint venture partner in the Utica Shale wet gas acreage, has an option to participate in the project, which may proportionately reduce the ownership of CMD affiliates and EVEP to 44% and 6%, respectively. Significant engineering and procurement has already begun for the project with the first cryogenic processing and fractionation plants scheduled to be in service by the second quarter of 2013.

Mike Stice, CMD’s President, commented, “We are pleased to partner with Momentum and EVEP to build a critically important link in the value chain for the rapidly developing Utica Shale play. This partnership will allow CMD to focus on building the extensive gathering and compression requirements of the system, while leveraging the expertise of Momentum to build and operate the processing and fractionation facilities. In addition, the scope of this project will provide an economic boost for companies and residents throughout Ohio as well as hundreds of high-quality, well-paying, new jobs for Ohioans. We look forward to joining with the citizens of Ohio to provide superior service and a high quality, reliable stream of natural gas and NGL products to our customers.”