Dominion, Caiman Form $1.5 Billion Utica Shale Joint Venture

Dominion Resources Inc., owner of Virginia’s largest utility, and closely held Caiman Energy II LLC announced a $1.5 billion joint venture to provide pipelines and processing to natural gas producers in the Utica Shale of Ohio and Pennsylvania.

Blue Racer Midstream LLC will be an equal partnership between the two, with Dominion providing assets and Caiman contributing capital, according to a joint statement today. Williams Partners LP, holder of a 48 percent stake in Caiman, said it will spend $380 million through 2014 on the projects.

The venture combines Caiman’s and Dominion’s previously announced plans to collect raw gas and extract valuable liquids such as ethane and propane produced from drilling in the Utica. Producers aim to replicate the shale-oil bonanzas of North Dakota’s Bakken formation and the Eagle Ford shale of Texas.

“The joint venture allows Dominion to capture the value of our assets in the Utica region,” Dominion Chairman and Chief Executive Officer Thomas Farrell said in the statement.

For producers, the joint venture will provide “a smooth line from the wellhead to sales,” Caiman Chief Executive Officer Jack Lafield said in an interview.

“You can sit down with a producer and he knows the fees he’s paying, and the method of getting it from his well to the cash register is well-defined,” Lafield said.

Ohio Drilling

Williams Partners, controlled by Tulsa, Oklahoma-based pipeline operator Williams Cos., agreed to invest as much as $800 million in Caiman Energy II LLC in July, joining private-equity firms EnCap Flatrock Midstream of San Antonio and Highstar Capital of New York.

The joint venture may look to ship gas liquids out of Ohio on a long-haul pipeline that Williams is developing, Lafield said.

The project may also help spur drilling in Ohio, since producers will know they have access to transportation, Billy Lemmons, managing partner at EnCap Flatrock.

“Sometimes the development kind of lags because of a lack of infrastructure,” he said in an interview.

EnCap Flatrock’s Fund I has been involved in $3.6 billion in projects that have closed this year, including the sale of Caiman Eastern Midstream LLC to Williams for $2.5 billion, Lemmons said. Some of those projects had funds from other sources.

Gas Pipelines

Dominion will contribute pipelines that gather gas from wells, a gas processing plant under construction in West Virginia and a pipeline linking the plant to Dominion’s gas network, according to today’s statement from the Richmond, Virginia-based company.

Dominion rose 0.8 percent to $52.20 at the close in New York. Williams gained 1 percent to $32.85 and Williams Partners increased 1.6 percent to $49.33.

UBS AG served as Dominion’s adviser and Barclays Plc and Citigroup Inc. advised Caiman.

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