TORONTO (miningweekly.com) – US number two coal producer Arch Coal on Wednesday announced it had entered into a letter of intent to create a joint venture (JV) with fossil fuel specialist Meritage Midstream Services II to develop a rail terminal to provide crude oil handling, storage, rail loading and marketing services to producers in Wyoming's Powder River basin and for its downstream refiners.

The new entity – to be called Black Thunder Terminal – would use Arch-contributed reclaimed land, rail switching and loop and other existing infrastructure assets at its Black Thunder mining complex in Campbell county, Wyoming.

Meritage would contribute capital and build and operate the crude oil terminal on property east of Arch's active operations, located near the basin's crude oil production activity. Meritage would own the majority interest in Black Thunder Terminal.

Arch said early stage crude oil transloading operations from inbound trucks to outbound trains at Black Thunder could begin as early as September, as most of the required rail infrastructure was already in place.

As demand from producers and refiners warrants, the Black Thunder Terminal would have the ability to increase the outbound shipping capacity from 10 000 bbl/d in the initial phase to 120 000 bbl/d of crude oil through outbound unit trains. Significant acreage was also available for further expansions.

The BNSF Railway would serve the terminal.

"This is an exciting day for both companies, as well as the Powder River basin. With an ideal land position and significant infrastructure already in place at its Black Thunder mine, Arch is the perfect partner for Meritage on this project," Meritage Midstream chairperson and CEO Steve Huckaby said.

Arch executive VP and COO of coal Paul Lang added the JV would allow Arch to further optimise its assets and unlock the value of its existing infrastructure without any impact to its coal loading operations.

The Powder River basin is one of the most resource-rich areas of the US, with massive reserves of coal and crude oil. The US Geological Survey has estimated that the basin contains about one-billion barrels of remaining recoverable oil.

"The Powder River basin has been the largest coal-producing region in the country for many years and currently accounts for approximately 40% of US coal production. Now new drilling technologies are being applied to legacy oil fields in the basin, allowing operators to expand their drilling programmes," Huckaby said.

"Approximately 25 rigs are operating in the region, more than 430 horizontal drilling permits were issued in the Powder River basin in 2012, and 222 have been issued thus far in 2013. What the basin lacks is sufficient pipeline and rail infrastructure at the right location to move crude oil and condensate to the highest-value markets."

The proposed JV was still subject to regulatory approvals, which the companies expected to receive in three to six months.