April 2009 Vol. 236 No. 4

In The News

April Newsreel: News on Alaskan Pipeline, Independent Gas Alliance, Probe in Fatal Explosion, and More

Two Alaskan Lawmakers Want Review Of Pipeline License
Independent Gas Producers Form Alliance
Probe Continues Into Fatal Montana Gas Explosion
Regency, GE Energy Financial Services, Alinda Bolster Haynesville Pipeline Project

Williams To Run Fewer Rigs In Colorado’s Piceance Basin

Oregon PUC Approves NW Natural System Integrity Program

Southern Union, Enterprise Sign Long-Term NGL Fractionation Agreement
Study Finds Upstream Oil & Gas Transaction Value Fell 32%
Longhorn Notes Increase In Shipments To Southwestern Markets
TEPPCO Executive Takes Temporary Leave of Absence
Fluor, Siemens Reach Long-Term Cooperation Agreement

Two Alaskan Lawmakers Want Review Of Pipeline License
Two Alaska lawmakers have introduced a resolution that would call on Gov. Sarah Palin to re-evaluate the natural gas pipeline license awarded to TransCanada Corp. The resolution by Republican Reps. Jay Ramras of Fairbanks and Craig Johnson of Anchorage suggests that a review is warranted, given the risks for project financing during the global economic recession.

If passed, the resolution would call for Palin and the attorney general to report back findings of their review within 180 days. TransCanada last year won an exclusive state license to build the gas line. It includes up to $500 million in state incentive money. BP and ConocoPhillips have a competing proposal named Denali.

Meanwhile, a state official assigned to help develop a small diameter natural gas pipeline from the North Slope to Cook Inlet estimated the line could cost about $4 billion and bring gas to Alaska homes and businesses as early as 2015.

Harry Noah, recently appointed project manager of an in-state gas line by Palin, told a news conference that “this schedule is very ambitious. A lot of things can affect it but when you are trying to develop a project, it’s always easy to go slower, but if you stretch it out, it’s very hard to contract it later on.”

Noah said he would build on work done by Anchorage natural gas company Enstar and the Alaska Natural Gas Development Authority to determine if the state should sanction a gas line that could provide a low-cost energy alternative to the state’s interior and replenish dwindling gas supplies from Cook Inlet gas fields. The most viable project identified so far is an 800-mile, 24-inch pipe between the North Slope and Cook Inlet that would have two compressor stations and provide about 500 MMcf/d, he said.

Independent Gas Producers Form Alliance

More than 20 of the nation’s largest independent natural gas exploration and production companies have formed the American Natural Gas Alliance (ANGA). The group, which continues to add members, has a singular mission – to increase awareness and appreciation of America’s clean and abundant supply of natural gas among consumers and policy makers.

ANGA appointed veteran product-sector advocacy executive Rodney W. Lowman as president. Lowman, who has managed successful organizations for both the plastics and forest products industries, is now establishing the natural gas alliance’s governance structure, public policy priorities and strategic communications initiatives. ANGA members comprise approximately 40% of total U.S. gas supply, producing about 8 Tcf per year.

Probe Continues Into Fatal Montana Gas Explosion

NorthWestern Energy is still investigating a March 5 natural gas explosion that killed a woman and leveled several businesses in downtown Bozeman, MT.
“There’s some other testing that they want to do at the site just to better understand how the gas migrated or may have migrated. What were some of the soil conditions like? A lot of forensic evidence needs to be collected to help us understand how this incident occurred so we can make sure it doesn’t happen again,” said a spokeswoman for the utility.

A separation on a two-inch NorthWestern Energy service line between the main gas line and the meter for a gallery was blamed for the explosion, according to a preliminary report. Several state and federal agencies, including the Department of Alcohol, Tobacco and Firearms are involved in the investigation.
Confusion over gas lines in the area at the time of the explosion is also being addressed.
“We know where those lines are, they are known to us, it was just in this case, there was a connector put in place at some point in time that did not make it onto the map, and that is something that we’re always taking alook at. We are always evaluating our system,” the spokeswoman said.

Regency, GE Energy Financial Services, Alinda Bolster Haynesville Pipeline Project

Regency Energy Partners, Alinda Capital Partners and an affiliate of GE Energy Financial Services have formed a joint venture to finance and construct Regency’s Haynesville Expansion Project, a north Louisiana pipeline that will transport gas from the Haynesville Shale, one of the fastest growing U.S. natural gas fields. Regency has already secured commitments from shippers for 84% of the pipeline’s capacity.

The initial 1.1 Bcf/d Haynesville Expansion Project will more than double Regency’s pipeline system in north Louisiana and is expected to be in-service by the end of 2009. Regency will continue to develop and operate the system through the new joint venture.

Regency will contribute to the joint venture its Regency Intrastate Gas System (“RIGS”) in north Louisiana, valued at $400 million, in exchange for a 38% general partnership interest in the joint venture. GE Energy Financial Services and Alinda Capital Partners, an independent private investment firm specializing in infrastructure investments, will contribute $126.5 million and $526.5 million in cash to the joint venture in return for a 12% and a 50% general partnership interest, respectively.

Regency will receive a cash payment equal to the total Haynesville Expansion Project capital expenditures paid through the closing date, subject to certain adjustments. Regency expects to close the joint venture as promptly as practicable following the satisfaction of certain closing conditions but no later than April 30.

Williams To Run Fewer Rigs In Colorado’s Piceance Basin

Williams Cos. Inc., the most active driller in the Piceance Basin, plans to operate nine or 10 rigs there in 2009, down from 20 it originally expected. Williams blames the cutback on the credit crunch, low natural gas prices and proposed state rules for drillers.

Spokeswoman Susan Alvillar said tight credit markets forced the company to stop borrowing to finance drilling and to operate on a cash-flow basis. The company operated about 25 rigs in the Piceance Basin last year. She said Williams is spending “quite a bit of money” to hire compliance officers for the new Colorado rules, which are not in force yet. The rules would require more precautions for wildlife, public health and the environment.

EnCana Oil and Gas (USA), the second-largest player in the basin, has said it will run five rigs this year, down from a dozen in 2008.

Oregon PUC Approves NW Natural System Integrity Program

Northwest Natural Gas Company reported that the Public Utility Commission of Oregon (OPUC) approved a stipulated agreement to create a new, consolidated natural gas pipeline System Integrity Program (SIP). The new SIP integrates older programs into a single program and provides customers with enhanced safety and system reliability.

The new SIP program will allow the company to recover costs related to NW Natural’s bare steel, pipeline integrity and other pipeline safety programs. The SIP includes a component for a distribution integrity management program which would be implemented following issuance of new federal regulations.

Program costs will be tracked annually, with recovery to be sought after the first $3.25 million of capital costs are incurred by the company. An annual cap for expenditures per year would be $12 million with any extraordinary costs above the cap to be approved with written consent of all parties.

Southern Union, Enterprise Sign Long-Term NGL Fractionation Agreement

SUG Energy, LLC, a subsidiary of Southern Union Company, and Enterprise Products Operating LLC, an affiliate of Enterprise Products Partners L.P., have signed a 10-year, natural gas liquids (NGL) fractionation agreement to provide Southern Union with up to 38,000 bpd of firm fractionation capacity at Enterprise’s Mont Belvieu, TX facility, beginning Jan. 1, 2010.

“In light of growing NGL volumes from the Rockies and Midcontinent, which could impact the future availability of fractionation capacity, we felt it prudent to secure long-term, reliable capacity for our NGL volumes produced in the Permian Basin,” said Roger A. Farrell, Southern Union’s senior vice president, midstream operations. “Enterprise is well-positioned, with both existing and planned infrastructure, to provide flexible, reliable and cost-effective fractionation services for our product.”

With capacity of 225,000 bpd, Enterprise’s Mont Belvieu facility is the world’s largest fractionation complex, and accesses the largest concentration of refineries.

In another development, Enterprise Products recently began operations at the partnership’s Meeker II natural gas processing plant in the Piceance Basin of Colorado. The expansion doubles processing capacity to 1.5 Bcf/d with the capability to extract up to 70,000 bpd of NGLs.

Enterprise also began operations at its expanded Shilling and Thompsonville gas processing plants in South Texas and expects its relocated Chaparral facility in the Permian Basin to begin processing natural gas shortly. The Meeker complex is supported by long-term commitments from 10 of the largest producers in the Piceance Basin. Current inlet volume at Meeker is 750 MMcf/d with 38,000 bpd of NGLs being extracted. Natural gas volumes are projected to reach 1.1 Bcf/d by the end of 2009, which is expected to produce 60,000 bpd of NGLs.

“Meeker is an integral component of our western midstream energy system,” said A.J. “Jim” Teague, Enterprise executive vice president and chief commercial officer. “This expansion will facilitate continuing growth in natural gas production from the Piceance Basin that is expected in 2009 and 2010 despite the effects of the recent decrease in drilling activity.

“Based on producer estimates, there are over 300 wells that have been completed in the basin that are waiting for pipeline connections. Meeker, through its connection with the White River natural gas hub, provides producers with access to markets through connections with six interstate pipelines that have approximately 2.5 Bcf/d of total takeaway capacity,” Teague said.

The Chaparral facility was an idle plant acquired in the merger with GulfTerra Energy Partners L.P. in 2004 and was recently relocated from southeast Texas to serve producers in the Permian Basin. The facility, which can handle up to 40 MMcf/d of natural gas and extract more than 2,000 bpd of NGLs, serves the partnership’s 900-mile Carlsbad Gathering System in southeast New Mexico. As part of the project, Enterprise constructed a 13-mile, 4-inch NGL pipeline that links the processing plant to TEPPCO Partners, L.P.’s Chaparral pipeline.
Study Finds Upstream Oil & Gas Transaction Value Fell 32%

Global mergers and acquisition (M&A) upstream transaction value plunged to $104 billion in 2008 from an annual average of nearly $160 billion in 2005-2007, according to the 2009 Global Upstream M&A Review prepared by IHS Herold Inc. and Harrison Lovegrove & Co., Ltd. The review analyzes more than 280 significant upstream transactions announced in 2008.

Deal activity was on a record pace through the first half with 203 transactions announced by July 31. The market tailed off precipitously to just 79 in the final five months due to plunging commodity prices and the extreme weakness in equity and credit markets. Activity in November and December was a record-low 25 deals, half the historical average.

Corporate transaction value plunged from $64.2 billion in 2007 to $34.2 billion in 2008, which is 72% lower than the $120.2 billion announced in 2005. The corporate deal count was a five-year low, with no U.S. corporate transactions in the fourth quarter. Total worldwide asset transaction value fell to $70.1 billion from the record $88.2 billion in 2007, but was still the second highest ever recorded. Asset transactions accounted for a record 67% of total worldwide transaction value and 80% of U.S. transaction value.

Buyers competed vigorously for coal-seam gas assets in Australia and shale gas interests in the U.S. and Canada. As a result, the gas weighting of transacted reserves reached 70%, the highest in 10 years. National oil companies and Sovereign Wealth Funds based in Asia, the Middle East, Europe and Latin America accounted for a record-high 15% of global open market transaction value during the year, including six of the 10 largest asset deals. NOCs have been the most active acquirers in the first quarter 2009.

The upstream M&A market again appears ripe for significant consolidation. Industry consolidation in a low oil price environment has typically been led by the largest international integrated oil companies which have the financial strength for transactions. The expectation is that corporate takeover activity will increase through 2009 and into 2010. The number of assets coming to the market is expected to increase. However, the buyer universe may be smaller than in the past, at least in the near-term, as many companies that completed transactions over the last four years now lack the resources to remain active in the M&A market.

< a name=”Longhorn”>Longhorn Notes Increase In Shipments To Southwestern Markets

Longhorn Pipeline Inc., a wholly owned subsidiary of Flying J Inc., reported last month a marked increase in recent shipment activity since Flying J secured a revolving DIP facility with Merrill Lynch on Feb. 27. As part of this arrangement, Longhorn has been granted extended use of line fill inventory and cash collateral that was financed by Merrill Lynch prior to Longhorn’s chapter 11 filing in December 2008. These actions enable Longhorn to offer shippers product location exchange services, as well as traditional product shipment services which replenish line fill inventories once they are delivered through the pipeline.

TEPPCO Executive Takes Temporary Leave of Absence

TEPPCO Partners, L.P. announced on March 13 that Jerry E. Thompson, president/CEO and director of its general partner, Texas Eastern Products Pipeline Company, LLC, took a leave of absence for medical reasons but will be available on a limited basis and is expected to return to his duties. The board of directors of the general partner extended interim executive authority to Chairman Murray H. Hutchison.

Fluor, Siemens Reach Long-Term Cooperation Agreement

The Siemens Energy and Industry sectors have signed an agreement with Fluor Corp. to strengthen the cooperation between the two companies. The strategic alliance establishes Siemens as a preferred supplier to Fluor and its global projects business. In the course of this long-term cooperation, the two companies will be coordinating their work and planning processes to better meet the increased project requirements. The focus will be on risk minimization and the acceleration of planning and implementation processes for major projects.