Kinder Morgan Buys Copano Pipeline for $3.22 Billion

Kinder Morgan Energy Partners will buy natural gas pipeline operator Copano Energy for $3.22 billion to tap into growing demand for infrastructure to transport vast supplies from the shale fields of Texas and Oklahoma.

Private equity firm TPG Capital, Copano’s top shareholder with a stake of more than 14 percent, will get a 41 percent premium to its $300 million investment made in 2010, if the deal goes through.

The deal is the latest in a flurry of multi-billion-dollar takeovers in the U.S. pipeline industry over the past two years as companies rush to cash in on a shortage of pipelines to move gas and gas liquids such as ethane and propane.

The oversupply of gas and gas liquids, largely due to the advent of new drilling methods such as hydraulic fracturing, has also hurt prices.

Many companies have announced plans to build new pipelines, but stricter regulations and environmental concerns have delayed the completion of several projects.

“Copano is already executing on a substantial backlog of expansion projects for which it has secured customer commitments and is exploring a significant amount of projects incremental to these,” said Kinder Morgan Chief Executive Richard Kinder.

“As a result of this acquisition, we will be able to pursue incremental development in the Eagle Ford Shale play in south Texas, gain entry into the Barnett Shale Combo in north Texas and the Mississippi Lime and Woodford Shales in Oklahoma,” CEO Kinder said.

Copano owns an interest in or operates about 6,900 miles of pipelines with capacity of 2.7 billion cubic feet per day (bcf/d) of gas and nine processing plants with more than 1 bcf/d capacity.

Kinder Morgan Energy owns an interest in or runs about 46,000 miles of pipelines that transport gas, gasoline, crude oil and other products, while its 180 terminals store petroleum products, chemicals and such other products.


Natural-gas royalties could top $1.2 billion in Pennsylvania

Private landowners are reaping billions of dollars in royalties each year from the boom in natural gas drilling, transforming lives and livelihoods even as the windfall provides only a modest boost to the broader economy.

In Pennsylvania alone, royalty payments could top $1.2 billion for 2012, according to an Associated Press analysis that looked at state tax information, production records, and estimates from the National Association of Royalty Owners.

For some landowners, the unexpected royalties have made a big difference.

“We used to have to put stuff on credit cards. It was basically living from paycheck to paycheck,” said Shawn Georgetti, who runs a family dairy farm in Avella, about 30 miles southwest of Pittsburgh.

Natural gas production has boomed in many states over the past few years, as advances in drilling opened up vast reserves buried in deep shale rock, such as the Marcellus formation in Pennsylvania and the Barnett in Texas.

Nationwide, the royalty owners association estimates, natural gas royalties totaled $21 billion in 2010, the most recent year for which it has conducted a full analysis. Texas paid the most in gas royalties that year, about $6.7 billion, followed by Wyoming at $2 billion and Alaska at $1.9 billion.

Exact estimates of natural gas royalty payments aren’t possible because contracts and wholesale prices of gas vary, and specific tax information is private. But some states release estimates of the total revenue collected for all royalties, and feedback on thousands of contracts has led the royalty owners association to conclude that the average royalty is 18.75 percent of gas production.

“Our fastest-growing state chapter is our Pennsylvania chapter, and we just formed a North Dakota chapter,” said Jerry Simmons, the director of the association, which was founded in 1980 and is based in Oklahoma. “We’ve seen a lot of new people, and new questions.”

Simmons said he hasn’t heard of anyone getting less than 12.5 percent, and that’s also the minimum rate set by law in Pennsylvania.

By comparison, a 10 percent to 25 percent range is similar to what a top recording artist might get in royalties from CD sales, while a novelist normally gets a 12.5 percent to 15 percent royalty on hardcover book sales.

Before Range Resources drilled a well on the family property in 2012, Georgetti said, he was stuck using 30-year-old equipment, with no way to upgrade without going seriously into debt.

“You don’t have that problem anymore. It’s a lot more fun to farm,” Georgetti said.


New England needs to expand gas pipelines

New England’s strong and increasing reliance on natural gas is well documented, with almost half of electricity currently generated by natural gas, up from just 15 percent in 2000, according to ISO New England.

That trend line will only increase in coming months and years with more and more homes and businesses converting to natural gas from heating oil. NStar has estimated that conversions here have tripled over the past three years and National Grid said conversions in Massachusetts and New Hampshire increased 34 percent.

All these are positive trends, particularly considering the abundance of cheap, available natural gas – and the possibility of far more due to the shale gas revolution happening throughout the nation.

However, the region will need to do more to increase our capacity to bring this abundant energy source to our businesses, institutions, and homes. That presents a problem which New England ought to see as an opportunity and move quickly to expand the available pipeline for natural gas into the region.

There is a clear need for additional gas pipeline capacity in New England, not only for electric generation on the relatively infrequent peak-gas-demand days and to fill the gaps from the growing use of intermittent renewable resources but, in general, for the rapidly growing end-use demand for gas.

We need new capacity to take advantage of the nation’s rising supplies of natural gas. Currently, the delivery cost of gas in New England is increasing rapidly and will likely keep rising, unabated, until pipeline capacity increases and more gas starts flowing into the area.

In New York, the key financing for an expansion was secured when marketers and transmission companies signed on to firm contracts after a period of significant increase in primary delivery costs. As a result, marketers are now concentrating in that key, new open market. After this new capacity, New York’s primary delivery cost is now approximately $2/therm lower than what Massachusetts end users are paying, as highlighted in a recent report by the US Energy Information Administration. That report also states that New England has the highest average spot prices for natural gas in the nation.

For New England, it doesn’t make sense to wait until the cost of gas increases to the point where it hurts commercial, industrial, and residential customers. For PowerOptions members, who use roughly 13 million dekatherms annually, matching New York’s primary delivery cost would translate into $26 million of savings.

While it is a bad idea to saddle the electricity market with the full cost, smart expansions of pipeline capacity make sense and regulators and the marketplace should consider a range of expansion solutions and include all potential sources of financing support.

The truth is, we can’t continue to provide the incentives we do to end users for the conversion from oil heating and steam to natural gas and then not expand our ability to bring more gas into the region. That math doesn’t add up.

Bottom-line, this is a very complex problem. There are no simple answers and a wide net of potential solutions must be cast. But simple answers like greater efficiency and leak prevention in our pipeline are simply not enough. Smart but bold action is needed – and soon.


Hess Exits Refining as Elliott Seeks Board Seats

Hess Corp. (HES) will sell its fuel storage terminal network and exit the refining business as Paul Singer’s Elliott Associates LP fund said it plans to buy more than $800 million shares and seek board seats.

Hess will close its Port ReadingNew Jersey, refinery by the end of February and seek a buyer for its 19 storage terminals, the New York-based company said in a statement today. Hess rose 5 percent to $61.84 at 10:24 a.m., the highest intraday gain on the Standard & Poor’s 500 Index.

Singer is the founder and president of Elliott Management Corp. which oversees two funds, Elliott Associates and Elliott International LP, that have $21.5 billion of assets under management. Elliott Associates notified Hess that it may seek board seats at the annual shareholder meeting this year, according to a separate release from Hess. Elliott last year added two new board members to BMC Software Inc. (BMC)after pushing BMC to consider a sale.

Peter Truell, a spokesman for Elliott, declined to comment when reached by phone today.

Hess’s terminals business may sell for as much as $1 billion, said Fadel Gheit, a New York analyst with Oppenheimer & Co. The moves also will free up about $1 billion in working capital “for future growth opportunities,” the company said. The Port Reading closure culminates a process that last year included shutting down another money-losing refinery Hess co- owned in the U.S. Virgin Islands known as Hovensa LLC

Gradual Transformation

“They’ve been doing this gradually,” Gheit said today in a telephone interview. “Hess has turned a corner and the company is executing the right strategy.” Gheit rates Hess the equivalent of a buy and doesn’t own shares.

Hess joins companies including ConocoPhillips (COP) and Marathon Oil Corp. (MRO) in exiting the refining business, which rallied in 2012 in areas where operators have had access to cheaper U.S. crude. East Coast refineries, which pay more for imported oil, have been shut as their profit margins narrowed.

“We have transformed Hess into a predominantly exploration and production company, which is part of a multi-year strategy to grow shareholder value,” Chairman and Chief Executive Officer John Hess said in the statement.

Hess has exploration and production assets around the world, from the Bakken and Utica plays in the U.S. to Equatorial Guinea and Norway. The company has tripled its revenue from exploration and production in the past decade, while continuing to generate 75 percent of sales from marketing and refining. Production in the third quarter climbed 17 percent from a year earlier to the equivalent of 402,330 barrels of oil a day, according to data compiled by Bloomberg.

Shale Emphasis

Of the $6.7 billion Hess plans to spend this year on exploration and production, 40 percent of it will go towards its unconventional shale resources in the U.S., the company said Jan. 9. Hess, which was founded by John Hess’s father, began as a fuel oil delivery business and expanded into retail, refining, and oil storage.

The company is retaining its gas station business, which includes more than 1,350 Hess-branded sites in 16 states along the East Coast, the statement said. The company is the leading gasoline convenience store retailer in the region, according to the company’s website.

Retail Exit?

“The next potential move for them could be to exit the retail side,” Brian Youngberg, an analyst with Edward Jones & Co. in St. Louis, said in a telephone interview today. “Retail is a lower-margin business, so exiting could potentially unlock further value.”

Valero Energy Corp. (VLO), the largest independent fuel processor in the world, is in the process of spinning off its convenience store business.

Founded in 1977, Singer’s Elliott Management is one of the oldest private investment firms of its kind under continuous management. The Elliott funds’ investors include large institutions, college and charitable endowments, family offices, and friends and employees of the firm.

Singer is among a group of creditors seeking payment from Argentina for bond defaults. Ghana detained an Argentine navy ship in October on the bondholders’ request and Argentine President Cristina Fernandez de Kirchner took a chartered flight to Indonesia this month to avoid creditors seizing the nation’s plane.

Hess has retained Goldman Sachs Group Inc. as its financial adviser on the terminal sales.


AWE Aldermaston uranium enrichment facility closed due to ‘corrosion’ in vital structural steelwork

A secret plant that enriches uranium for Britain’s nuclear warheads on submarines has been shut due to “corrosion” in vital structural steelwork.

The AWE Aldermaston facility was closed following inspections by the Office for Nuclear Regulation (ONR), the nuclear division of the Health and Safety Executive.

Regulators feared one of the “older manufacturing facilities”  at the complex in Berkshire, which builds components for the Trident ballistic nuclear missiles on Royal Navy Vanguard-class submarines, did not conform to standards that demand buildings are capable of withstanding “extreme” weather and seismic events.

The ONR issued an “improvement” notice that prompted the closure by the AWE, the private consortium that operates the plant for the Ministry of Defence. AWE has been given until the end of this year to rectify the problems by the ONR.

The group’s role is to manufacture and sustain the Trident warheads and “maintain a capability” to produce a successor to the ageing nuclear deterrent in the future.

AWE said it covers the entire “life cycle” of warheads in Britain from initial concept and design through manufacturing and assembly to decommissioning and disposal.

The firm is run by a group of three private companies:  US firms Lockheed Martin and Jacobs Engineering Group, and the Serco in Britain.

Critics last night said the corrosion in an older building highlighted the Britain’s “ancient and rickety” nuclear infrastructure.

The ONR notice was served on November 8 after a scheduled inspection in August that found an “unexpected” area of steel corrosion in structural steelwork.

The issue emerged through information published in the ONR’s regional community newsletters which are published quarterly.  Inspections at the plant were said to have “discovered an unexpected area of corrosion on structural steelwork in one of their manufacturing facilities at Aldermaston”.

Subsequent inspections by AWE found “further degradation” and all non-essential operations were stopped at the facility.

It is understood the building in question is used for the manufacture of nuclear components and was found not be able to withstand “exceptional challenges”.

“ONR investigated, and found that AWE had not fully complied with Licence Condition 28(1) in so far as its arrangements to examine, maintain and inspect the structure were not adequate to prevent the degradation of the structure, and the resulting challenge to its nuclear safety functions,” said an ONR spokesman last night.

He added: “The Improvement Notice required AWE to ensure that the structure is repaired such that its safety function is fully restored.”

The Ministry of Defence last night said the ONR demands had not had any immediate impact on Britain’s nuclear submarine programmes. A spokesman said AWE was accessing the “extent of the problem” and considering “how best to rectify it”.

“The MoD’s ancient ancient and rickety infrastructure is clearly not up to the job of replacing the current Trident nuclear weapons programme,” said the Green MP Caroline Lucas. She added: “Rebuilding it to modern safety standards will add even more to the vast costs of the programme.”

An AWE spokeswoman said operations had been suspended as a “precaution”. She add that the improvement notice “formalises a lot of the inspection and review work” that had already been carried out by the company.


Columbia Gas Transmission Receives FERC Approval Of Customer Settlement Facilitating Pipeline’s Long-Term Infrastructure Investment Plan

Plan addresses pipeline and system upgrades; improves public safety, customer reliability and service; provides economic benefits to communities; work expected to create 7,000 jobs

WASHINGTON and HOUSTON, Jan. 25, 2013 /PRNewswire/ – NiSource’s Columbia Gas Transmission (Columbia) today received approval from the Federal Energy Regulatory Commission (FERC) for a customer settlement that facilitates Columbia’s comprehensive pipeline infrastructure investment plan.

The settlement, filed on September 4, 2012 and widely supported by Columbia’s customers, covers the initial five years of Columbia’s investment plan and contains provisions for potential extension thereafter. Among other components, key elements of the settlement identify individual infrastructure projects and establish a mechanism for recovery of Columbia’s revenue requirement for infrastructure investment under the plan.

“FERC’s approval of our customer settlement is a milestone in our efforts to modernize Columbia’s interstate pipeline system in a balanced, thoughtful and transparent manner,” said Jimmy Staton, Columbia’s chief executive officer. “We acknowledge FERC for their timely review and approval, and appreciate the collaboration from our customers. We look forward to getting the job done. The work we do will help ensure safer, more reliable pipeline infrastructure for our customers and the communities across our footprint.”

Under the settlement, Columbia will invest approximately $300 million per year, in addition to a $100 million investment in ongoing maintenance, over the 2013 through 2017 period on system improvements, which include:

  • Replacing Aging Infrastructure – commencing the replacement of approximately 1,000 miles of existing interstate transmission pipelines, primarily bare steel (400 miles in the first five years);
  • Upgrading Natural Gas Compression Systems – replacing and modernizing more than 50 critical compressor units along the pipeline system that will enhance system efficiency and improve environmental performance;
  • Increasing Pipeline System Reliability – uprating pressures and looping systems where needed to ensure gas is reliably delivered to critical markets; and
  • Expanding In-Line Inspection Capabilities – facilitating Columbia’s ability to perform state-of-the-art maintenance and inspections without interrupting services

Infrastructure investment work will take place across Columbia’s footprint, including Kentucky, Maryland, Ohio, Pennsylvania, Virginia and West Virginia. More than 7,000 direct jobs are expected to be created as a result of the infrastructure investment program. That work will cover a broad range of activities, including facility engineering and design, permitting, project management and a variety of construction trades.

Working with FERC and other federal, state and local agencies, Columbia will continue to engage key stakeholders, landowners and customers throughout the planning and construction process. More information about the company’s investment projects can be found on

Columbia projects that its entire infrastructure investment plan could involve an investment of approximately $4 billion over an extended (10-15 year) period.


Nebraska governor approves Keystone XL route

Nebraska Gov. Dave Heineman has approved TransCanada Corp.’s revised route for the Keystone XL pipeline, clearing the way for a final decision from U.S. regulators on the project that would bring Canadian oil to the Texas coast.

The new route avoids Nebraska’s Sand Hills, an environmentally sensitive region overlaying the Ogallala aquifer, the state’s main source of groundwater. The pipeline will still cross the aquifer, though in a less sensitive area, according to a letter Heineman, a Republican, sent Tuesday to President Barack Obama and Secretary of State Hillary Clinton informing them of his decision.

“Keystone would have minimal environmental impacts in Nebraska,” Heineman said in the letter. “The concerns of Nebraskans have had a major influence on the pipeline route, the mitigation commitments and this evaluation.”

Heineman requested that Nebraska’s environmental review and route approval be added to the study underway by the State Department, which has authority over the project because it crosses an international border. TransCanada executives have said U.S. approval for the pipeline could come by the end of March. Victoria Nuland, a spokesman for the State Department, said the review won’t be ready by then.

“Keystone XL is the most studied cross-border pipeline ever proposed, and it remains in America’s national interests to approve a pipeline that will have a minimal impact on the environment,” Russ Girling, chief executive officer for the Calgary-based pipeline company, said Tuesday in an emailed statement.

Supporters of the 1,661-mile project have said it will provide thousands of jobs and help the United States avoid dependence on energy sources from politically unstable places. Critics have turned the pipeline proposal into an environmental debate over Canada’s oil sands and the heavy crude’s contributions to air and water pollution. Blocking pipeline transport of the oil to markets in the U.S. and overseas might jeopardize development of the resource.

TransCanada’s original permit request to build the $7.6 billion pipeline, planned to stretch from Alberta’s oil sands to Gulf Coast refineries, was delayed and ultimately rejected last year by the State Department after Heineman and other Nebraska officials criticized the route.

The project should now get “the final green light,” Sen. Mike Johanns, a Nebraska Republican who opposed TransCanada’s original route, said in a statement. “I hope President Obama will swiftly approve the project so we can take a significant step forward in meeting our energy needs.”

After the initial proposal was rejected last year, TransCanada broke the project into two pieces, one running from Alberta to Steele City, Neb., and the other from Oklahoma to Texas refineries. Construction has begun on the southern portion of the pipeline, and environmental activists have been arrested in several areas of Texas after staging protests or chaining themselves to construction equipment.


Community Minister Bennett predicts a natural gas boom as way cleared for LNG plant

British Columbia is on the verge of a natural gas development boom that will rival anything Alberta has experienced, according to B.C.’s Community Minister.

Bill Bennett made that comparison Tuesday while speaking at a press conference to announce the final regulatory pieces have fallen in place for a new liquefied natural gas plant to be built on a native reserve near Kitimat.

The massive LNG plant, a joint venture by Apache Canada Ltd. and Chevron Canada Ltd., in co-operation with the Haisla First Nation, will process nearly 700 million cubic feet of gas per day, becoming a key link in the transportation chain between B.C.’ s northeast gas fields and off-shore markets.

Mr. Bennett said the plant, the first of six that have been proposed for the West Coast, will open up B.C.’s massive gas fields and allow the resource industry to thrive like it never has before in the province.

“The story here is a story about British Columbia exploiting an opportunity … on the scale of what faced Alberta 40 to 50 years ago,” Mr. Bennett said.

“The opportunity for B.C. really is on the same scale as for example, Norway, when they discovered they had off-shore oil [and gas discoveries] and Alberta when they discovered they had oil and could ship it to the U.S.,” Mr. Bennett said.

He said both Alberta and Norway have thrived economically because of the way their governments regulated and encouraged the development of rich oil and gas resources.

“It’s built [Alberta’s] economy and made them, you know, the most [economically] comfortable province in Confederation.

“It’s that scale of an opportunity [for B.C.],” he said.

Last month Apache Canada and Chevron Canada announced they were teaming up to develop gas fields in the Horn River and Liard basins, in northeast B.C.

Apache Corp. chairman Steven Farris has described those fields as “two of the most prolific shale gas plays in North America, with more than 50 trillion feet of resource potential.”

At a press conference in Vancouver, Mr. Bennett and John Duncan, federal Minister of Aboriginal Affairs and Northern Development, jointly announced regulatory changes that they said have now cleared the way for construction of the Kitimat LNG plant.

Haisla Chief Councillor Ellis Ross praised both levels of government and industry for working with the band to bring the project forward.

“Our people have been looking at natural gas projects since the 1980s … this is a small example of what can be done if all … four parties are focused,” he said.

Mr. Bennett said the regulatory changes allow the province to enforce provincial environmental standards on reserve lands, which are technically under the jurisdiction of the federal government.

Tim Wall, president of Apache Canada, said the change provides “regulatory certainty” for the Kitimat LNG plant, allowing construction to proceed.

“It’s unusual to be here celebrating regulations,” said Mr. Bennett, who has a reputation for battling red tape.

Mr. Bennett, whose government is trailing in the polls as it seeks re-election in May, said developing B.C.’s gas fields is of “profound” economic importance to the province.

“It’s huge and it has the potential to change the frame for British Columbia in terms of the jobs [created],” he said.

Mr. Bennett said the chronic unemployment problems that burden many small northern communities, particularly native communities, could be relieved by the development of B.C.’s gas fields.


Pipeline Project Moving Forward…

Enbridge Energy Co.’s plan to build a new $1.9 billion pipeline across northern Indiana and Michigan is drawing considerable interest. It should draw applause as well.

The company plans to replace the existing 30-inch crude oil and liquid petroleum pipeline from Griffith to Stockbridge, Mich., with a 36-inch pipeline. The 30-inch pipeline, built in the 1960s, would be left in place, cleaned out and sealed, after the new pipeline becomes operational.

What has brought so much public attention to this project is the need to expand the easement through people’s yards and fields. “The easement is getting full,” Enbridge project director Thomas Hodge said, so Enbridge is asking property owners for an additional 25 feet. That extra room improves safety when digging up pipelines and keeps structures from being built near a pipeline that otherwise could be right on the edge of the existing easement.

Building the new pipeline will create more than 1,000 temporary and permanent jobs, a big plus in itself, but it also means improved safety. Installing a new pipeline means less maintenance, so there would be fewer disruptions to property owners.

Hodge hopes contractors will begin work in May, with ground broken in June, after the necessary permits have been obtained.


5 Billion Pipeline Project – Awarded to TransCanada

TransCanada Corp said Wednesday it has been chosen by Progress Energy Canada Ltd. to build, own and operate a 5 billion Canadian dollar ($5.1 billion) pipeline project that would transport natural gas to a new liquefied-natural-gas export terminal planned off Canada’s west coast.

The Pacific Northwest LNG export terminal in British Columbia was proposed as part of the multi-billion takeover of Progress Energy Resources Corp. by Malaysian state-run energy giant Petroliam Nasional Bhd, which closed last month.

Calgary, Alberta-based TransCanada said it expects to finalize definitive
agreements for the Prince Rupert Gas Transmission project early this year. The proposed pipeline will transport natural gas primarily from the North Montney gas-producing region near Fort St. John, British Columbia to the LNG export facility, which is aimed at exporting natural gas to Asian markets.

The pipeline company also said it’s planning to extend its existing NOVA Gas Transmission Ltd. system in northeast British Columbia to connect both to the Prince Rupert Gas Transmission project and to additional North Montney gas supply from Progress and other parties. It estimates initial capital costs for the extension at about C$1 billion to C$1.5 billion.

Before Petronas closed its takeover of Progress, the two had said they were moving their LNG export project into the next phase of engineering and said a final investment decision would be made in late 2014. First LNG exports are targeted for 2018.