21-02-2012

SemGroup, Gavilon and Chesapeake announce new pipeline and storage company

SemGroup Corporation, Gavilon Midstream Energy, LLC, a subsidiary of The Gavilon Group, LLC; and an affiliate of Chesapeake Energy Corporation today announced plans to form a joint venture that will construct a 210-mile pipeline in western and north central Oklahoma which will deliver crude oil to a 1-million-barrel storage facility in Cushing, Oklahoma. The pipeline and storage facility will meet growing midstream requirements resulting from the burgeoning drilling activity in western Oklahoma and the Mississippi Lime play.

The pipeline will consist of two laterals, one originating near the town of Alva in Woods County, Oklahoma, and the other near the town of Arnett in Ellis County, Oklahoma. The laterals will intersect near Cleo Springs in Major County, Oklahoma, where the pipeline will increase in diameter and continue east to storage at Cushing. The pipeline will have an initial capacity of 140,000 barrels per day, and following the addition of more horsepower, a maximum operating capacity of 180,000 barrels per day. Construction of the pipeline is planned to begin in July 2012, and it is expected to be in service in the third quarter of 2013.

“This project will happen because of a spirit of cooperation among the three companies who each have unique capabilities. Together, we are leveraging these capabilities to solve a significant and growing crude oil transportation constraint in the state of Oklahoma,” said Norm Szydlowski, chief executive officer of SemGroup Corporation. “SemGroup brings the capability to design, construct and operate crude oil pipeline and storage; Gavilon has the financial strength and risk management capabilities to clear the barrels in the Cushing market; and Chesapeake is stepping up with a volume commitment from its vast acreage holdings and high-quality reserves to anchor the project. The formation of this new joint venture increases SemGroup’s presence in an area with an increasing demand for midstream service we can provide.”

“We are pleased to be expanding our portfolio of midstream assets with strong industry partners,” explained Tom Ramsey, chief operating officer of Energy at Gavilon. “New crude oil discoveries in the U.S. necessitate additional infrastructure and supply chain management expertise to serve producers and consumers, which has been the focus of growth for Gavilon’s energy segment.”

“Strong crude prices continue to provide attractive economics for producers in these plays,” said Mike Stice, senior vice president of Chesapeake Energy Corporation. “We are excited about this expansion and working with SemGroup and Gavilon to accommodate the increase in production. This pipeline will further improve the upstream economics of Chesapeake Energy Corporation by providing a lower-cost transportation alternative to move production from the field to downstream markets at the Cushing interchange, and will provide the same economic advantage to other producers in these drilling plays.”