Radnor energy company Penn Virginia Resource Partners L.P. on Monday announced $380 million in new pipelines serving Marcellus Shale natural gas drillers, continuing its expansion in Pennsylvania's booming shale-gas region.
PVR, which has rapidly transformed itself from a coal company to a natural-gas pipeline company, said it has entered into long-term agreements to extend its Lycoming County system to collect and process gas from the wells of four gas drillers, including some of the biggest producers in northern Pennsylvania.
The company's announcement comes only a few days after it closed on the $1 billion acquisition of Chief Gathering L.L.C.'s pipeline system, which it financed with private-equity funding and a new debt issuance.
The Chief acquisition will catapult PVR into the "midstream" business of gathering and processing natural gas, said William H. Shea Jr., chief executive officer of the company's general partner, Penn Virginia Resource G.P. The acquisition doubled the value of the company.
"There's an awful lot going on around here," said Stephen R. Milbourne, its director of investor relations. "We think this is very exciting."
Under the agreements announced Monday with Royal Dutch Shell, Range Resources Corp. and Southwestern Energy Co., PVR will build 54 miles of new trunk line, extend its existing 30-inch pipeline north through Lycoming County and into Tioga County. In addition, the company will build many more miles of lateral connections to groups of wells.
The company is also building a separate system of pipelines and compression stations in Lycoming County east of Williamsport to connect wells being developed by privately-held Inflection Energy L.L.C.
The midstream systems that PVR is building are designed to feed gas produced by operators to the Transcontinental Pipeline and the Tennessee Gas Pipeline 300, two major east-west interstate systems that deliver natural gas to customers in Northeastern states. The projects are planned for the next six years.
Midstream companies largely toil outside the public limelight, operating the critical infrastructure to compress, process and transport gas produced by drillers to the big pipelines. The business is attractive because it generates a steady flow of fees, much like collecting tolls on a highway, that do not vary even when the price of the natural gas commodity rises or falls.
The 15- and 20-year agreements with some of the biggest producers in the Marcellus Shale "are all fee-based with no direct commodity price risk," PVR said in a statement.
PVR is wasting little time getting to work. Construction of one section of the trunk line is expected to begin within two weeks and be completed in the fourth quarter, it said.
The company is also getting double duty out of the property it is acquiring for its Lycoming gas pipelines. In a joint venture with Aqua America Inc., PVR is using the rights of way to construct a separate system of pipes to deliver fresh river water to drillers for use in hydraulic fracturing of wells, eliminating the need for thousands of trips by tanker trucks.
The Aqua-PVR joint venture began operations last month, but a second phase of the plan has run into obstacles in Jersey Shore, Pa., where some residents of a mobile-home park have resisted requests to make way for a pumping station the venture wants to build on the West Branch of the Susquehanna River.
PVR formerly operated as a subsidiary of Penn Virginia Corp. but is now structured as an independent partnership, whose ownership units are traded on the New York Stock Exchange. Its partnership units closed at $23.44, up 82 cents or 3.6 percent.
PVR's board includes Robert J. Hall, publisher of Philadelphia Media Network, The Inquirer's owner.
PVR owns and manages coal and natural resource properties — it leases mineral rights to operators, but does no mining itself. Its midstream operations include more than 4,500 miles of natural gas gathering pipelines and seven processing systems mainly in Texas, Oklahoma and Pennsylvania. .
PVR's Shea is presenting the company's new look to investors on Thursday at the National Association of Publicly Traded Partnerships.