On August 4, 2014, the Board of Directors of the General Partner of the Partnership approved the Partnership’s exercise of its right-of-first-offer to acquire the Gonzales County system for total consideration not to exceed $110 million. Construction on the system commenced in the second quarter of 2014 at an estimated total capital expenditure of approximately $100 million incurred by an affiliate of ArcLight. The initial phase of the project is expected to commence operations in the fourth quarter of 2014, and full-system operations are expected in the first quarter of 2015. The Partnership anticipates the acquisition of the system from an affiliate of ArcLight will be completed in late 2014 or early 2015.
The system is expected to include saltwater disposal capabilities as well as full-well-stream gathering and treating infrastructure to manage oil, gas, and water production. Total design capacity is approximately 95,000 barrels per day of crude oil / water and 15 million cubic feet per day of natural gas. Following the consummation of the transaction as currently contemplated, the Partnership would provide midstream services under a long-term, fee-based agreement with Forest Oil Corporation (“Forest Oil”).
On August 5, 2014, the Partnership executed an option agreement providing the Partnership with the right to acquire a 50 percent interest in Republic Midstream from an affiliate of ArcLight. Republic Midstream, a newly formed ArcLight portfolio company, executed an agreement with Penn Virginia Corporation (“Penn Virginia”) in July 2014 to construct and operate a crude oil gathering system, central delivery terminal complex, and an intermediate takeaway pipeline to serve Penn Virginia’s acreage position in the Eagle Ford Shale. ArcLight has committed $400 million to Republic Midstream for construction of the crude oil system. In accordance with the terms of the option agreement, the Partnership will have the right to acquire a 50 percent interest in Republic Midstream for approximately $200 million upon commencement of operations, which is expected in the first half of 2015.
Pursuant to the terms of its agreement with Penn Virginia, Republic Midstream will provide midstream services to Penn Virginia under a long-term, fee-based transportation agreement, supported by minimum volume commitments and dedicated acreage in the area served by the gathering system. The gathering system is expected to include 180 miles of gathering and trunk lines located in north central Gonzales and Lavaca counties that would deliver gathered volumes to a 144-acre storage and blending crude oil terminal in western Lavaca County. The intermediate system is expected to consist of a 12-inch, 30-mile takeaway pipeline with initial capacity of 80,000 barrels per day. Prior to and after the acquisition of the 50 percent interest described above, the Partnership will provide construction, operations, and general management services for Republic Midstream.
“The acquisitions of the Gonzales County and Republic Midstream assets align with our initiative to continue expanding our midstream presence in the Eagle Ford shale,” said Steve Bergstrom, Executive Chairman, President and Chief Executive Officer. “American Midstream initiated the opportunities, and we are excited to continue working in partnership with ArcLight to develop assets to provide best-in-class midstream services to Forest Oil, Penn Virginia, and other third-party producers. The recent growth in our Lavaca gas operations acquired earlier this year demonstrates the tremendous upside potential of the Eagle Ford, particularly in the area in which we operate. We are creating a midstream foothold in the region with long-term, fee-based agreements, and we anticipate Gonzales County and Republic Midstream to be significant contributors to our portfolio beginning in 2015.”