US-based private equity firm First Reserve has agreed to buy out Dominion Energy's stake of 50% in Blue Racer Midstream for total consideration of up to $1.5bn.
As per the terms of the agreement, First Reserve will pay Dominion Energy $1.2bn in cash and up to $300m in the form of earn-out payments based on the performance of the US-based Blue Racer Midstream. The performance-based payments will be made from 2019 through 2021.
Blue Racer Midstream was created in December 2012 by Dominion Energy and Caiman Energy II as a 50:50 joint venture to own, operate, develop and acquire midstream assets in the Utica Shale and certain nearby areas in the Marcellus Shale.
The midstream company offers natural gas gathering, compression, dehydrating, treating, processing, fractionation, and transportation services for customers operating in the Utica and Marcellus shale plays.
Blue Racer Midstream operates over 1,126km of gathering pipeline and boasts of having 800 million plus cubic feet per day of cryogenic processing capacity.
First Reserve managing director Gary Reaves said: “First Reserve has a deep history of investing behind some of North America’s most significant midstream operators. In addition, we have a long history of investing in the Utica shale, most notably through our ownership of Ascent Resources which is currently the largest natural gas producer in the basin.
“This historical and current portfolio experience leads us to believe the Utica shale is one of the premier rich natural gas development areas in the U.S., and, in our view, Blue Racer is particularly well-positioned to capture this opportunity.”
Dominion Energy is taking up the sale of its stake in Blue Racer Midstream as it has become non-core to its business and also to help reduce the group’s debt. The company said that the sale of the midstream joint venture will enable it to continue focus on its regulated energy infrastructure.
Dominion Energy chairman, president and CEO Thomas F. Farrell, II said: “We have consistently indicated that a sale of Blue Racer would be opportunistic based on a compelling valuation and transaction structure.
“We are very pleased with the attractive valuation achieved through the competitive sale process which represents a multiple range of approximately 14 times to 16 times estimated 2018 EBITDA based on bookends of potential payments to be received under the earn-out structure.”
The Blue Racer Midstream transaction is expected to be completed by the year end, said Dominion Energy.