American Midstream Partners announced the execution of an agreement to purchase an approximate 120-mile natural gas gathering and redelivery system located in the oil window of the Eagle Ford shale.

In December 2013, an affiliate of American Midstream’s general partner entered into a purchase and sale agreement with a subsidiary of Penn Virginia to acquire the gathering and redelivery system.

Upon closing the acquisition with Penn Virginia, American Midstream will also enter into a long-term, fee-based gathering agreement, whereby Penn Virginia will dedicate for 25 years all current and future natural gas production from the areas served by the system.

The system is located in Gonzales and Lavaca counties, Texas, in close proximity to the previously announced full-well-stream gathering system currently under development by an affiliate of American Midstream’s general partner.

Construction and operation of the Penn Virginia system began in 2011 and the system currently has operating capacity of approximately 90 million cubic feet per day (MMcf/d). The system is currently flowing more than 40 MMcf/d between sales volumes and gas lift, with a significant ramp in volumes expected throughout 2014 and thereafter.

American Midstream anticipates investing between $60m and $70m over the next five years, including the capital expenditures associated with the purchase price adjustment, to expand the system to accommodate Penn Virginia’s drilling program, and anticipates EBITDA will increase over the same period of time to approximately $25 million in 2018.

American Midstream Partners executive chairman, president and CEO Steve Bergstrom said, "We are excited to be working with Penn Virginia in the prolific oily window of the Eagle Ford shale."

"The gathering system is located in an area of the Eagle Ford that is a primary investment focus for Penn Virginia," Bergstrom added.

The transaction is expected to close in January 2014, and the closing is subject to financing and other customary closing conditions.