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Out of the spotlight, Marcellus shale players expect private equity to move on

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Out of the spotlight, Marcellus shale players expect private equity to move on

With private equity focused on the oil-rich Permian Basin in Texas and New Mexico, Appalachian natural gas producers and pipeline companies expect to be spared the influx of competition.

"If you think about the Marcellus and Utica specifically, I really think for the most part the players that want to be here are here," Kyle Mork, CEO of the privately-held Greylock Energy, said in a Jan. 31 interview on the sidelines of a Pittsburgh conference held by Hart Energy.

Formed in 2017 and backed by ArcLight Capital Partners LLC, Greylock is a gas driller and gatherer with assets located in West Virginia and Pennsylvania. "Going through the deal process we just went through, and we talked to a lot of folks, it seemed like there were some folks who did not like natural gas and they preferred to be in oil, or they preferred to be in a different basin."

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Kyle Mork, CEO of Greylock Energy.

Source: Greylock Energy

Crestwood Equity Partners LP Chairman, President and CEO Robert Phillips agreed that private equity is less of a threat to midstream master limited partnerships and corporations operating in the Marcellus compared to other hot production areas. Even though Crestwood has harnessed the power of private funds in the Permian by partnering with First Reserve Corp, Phillips remains wary.

"I think what is frustrating for us as well as everyone else is private equity tends to drive valuations up and returns down," he explained on the sidelines of the conference. "Once we kind of go through that cycle, and it'll take a couple of years, I think valuations will be back to normal again and those private equity guys will go somewhere else like the Powder River Basin, for example."

EQT Midstream Partners LP COO Jerry Ashcroft, meanwhile, said the Marcellus asset value increases driven by private equity entrants over the past few years are starting to dwindle, indicating that private companies may sell to legacy midstream names.

"Right now from [EQT Midstream's] standpoint I think you’re going to see more consolidation in this space, and in my opinion it will probably be private equity rolling out assets into companies like [EQT Midstream]," he said during the conference.

Greylock plans to increase its holdings by both building new infrastructure and considering acquisitions. With ArcLight's commitment, Mork said the assets that previously belonged to Energy Corp. of America can serve as the base for a larger enterprise.

"A big part of it is just having a very different balance sheet than we did before and having a great private equity partner that has both the private capital and the human capital and the appetite to really grow a business," he noted. "Greylock is their upstream and midstream platform in Appalachia."

Part of that platform, Mork continued, is taking on smaller-scale projects that might not appeal to bigger Marcellus gas companies, such as Greylock's gas line to a coal-fired power plant in central Pennsylvania that NRG Energy Inc. bought and converted to gas.

"The [Williams Cos. Inc.s] of the world, we're not going to compete with them. ... That size of a deal I doubt the big guys would be really interested in," Mork said. "For us it was perfect as a creative deal and so that's the type of thing I think we would be looking to do."