The operating units of Penn Virginia Resource Partners L.P. and Aqua America Inc. (WTR - Free Report) , yesterday, joined hands to build and operate a private pipeline system to supply fresh water to natural gas producers drilling in the Marcellus Shale in north-central Pennsylvania. The joint venture formed between the two companies is named Aqua — PVR Water Services LLC.
Per the agreement, the companies will construct a 12-inch diameter steel pipeline running parallel to the trunkline of Penn Virginia's gathering system in Lycoming County and will share Penn Virginia's existing rights-of-way. Further, it has been decided that Penn Virginia will construct the fresh water pipeline and handle negotiations of water pipeline capacity contracts with producers. Aqua will operate the system when completed and handle water intake supply arrangements.
The project will draw investments of $12 million each from Aqua and Penn Virginia, for the construction of the first segment of the project. The joint venture has commenced construction of the fresh water pipeline, and expects limited water delivery before year-end. The companies expect the entire 18-mile long first segment of the system to be fully completed and begin operation as early as the first quarter of 2012.
Currently, the joint venture has a pact signed with Range Resources - Appalachia LLC, a wholly owned subsidiary of Range Resources Corporation (RRC - Free Report) to supply fresh water to three of Range's water impoundments. The joint venture is in also in negotiations with other producers in the region for similar supply agreements.
Penn Virginia and Aqua believe that this project is a 'win-win' solution offering tangible benefits to both the contracting producers and the local communities, which the pipeline will serve. The pipeline will provide contracting producers with a reliable fresh water source at a lower cost. Also, it will benefit the local residents by reducing the number of trucks operating in the region; thus, reducing traffic congestion, noise and delays.
Aqua America is one of the largest U.S.-based, publicly-traded water utilities and serves almost 3 million residents in Pennsylvania, Ohio, Illinois, Texas, New Jersey, Indiana, Virginia, Florida, North Carolina, Maine, New York and Georgia. The company currently holds a Zacks #3 Rank (short-term Hold rating).
Radnor, Pennsylvania-based Penn Virginia Resource manages coal and natural resource properties as well as natural gas gathering and processing businesses. The partnership’s coal properties are located in Central and Northern Appalachia, Illinois Basin and San Juan Basin. The partnership owns and operates natural gas midstream assets located in Oklahoma and Texas. Penn Virginia currently has a short-term Zacks #2 Rank (Buy). We maintain our long-term Neutral recommendation on the stock.