SK decided to invest more than US$100 million in Eureka Midstream Holdings which has the highest profitability and growth potential among North American gathering & processing (G&P) companies. The contract will be signed through SK's US subsidiary Plutus Capital.
The G&P business is a gathering and processing service for collecting natural gas produced from a gas well and transfers it through a pipeline, and removing impurities from transferred natural gas and transport and sells it to end-users.
Eureka is a G&P company located in Marcellus-Utica Basin of Pennsylvania, Ohio and has gathering gutting pipelines capable of transporting 17 million tons of natural gas annually. The company is under long-term contracts of an average of more than 10 years based on fixed commissions and has exclusive rights to deal with gas production in specific regions, which enhances its business stability. In particular, the company has top-level profitability in the industry with its EBITDA margin reaching 66%.
Marcellus-Utica Basin is the largest natural gas reserve in North America. The US government is actively supporting gas production and infrastructure projects in the region in order to meet surging US gas demand.
Founded in 2012 as a subsidiary of Blue Ridge, a US resources producer, Eureka was acquired by Morgan Stanley Infrastructure Fund of US investment bank Morgan Stanley in 2014. Morgan Stanley recently sold off some of it equities in the company to SK to attract competent strategic investors.
This investment is expected to allow SK to maximize profit by integrating and strengthening the entire value chain that includes the development, transportation and supply of natural gas in the US. The value chain can be divided into upstream for mining natural gas, midstream for transport and processing and downstream for supply and sale.
In exploration & production belong to the upstream process, SK Innovation moved its business headquarters to the US and is aggressively pursuing ahead with the E&P business in the US. SK E&S, a wholly-owned subsidiary of SK, has the right to use LNG liquefaction plants, a part of the downstream business in the US.
Industry experts say that if SK strengthens its mid-stream capabilities through investment in Eureka, synergies among subsidiaries of the SK Group will be maximized.