Category Archives: Shale

PVR’s Wyoming Pipeline Comes Online

PVR Partners, L.P. ( PVR ) announced the completion of construction activities of its latest natural gas trunk line in the north-central province of Pennsylvania. The midstream project, Wyoming Pipeline, also came online commercially. The pipeline system was initially constructed by Chief Gathering LLC until it got acquired by PVR Partners in May 2012.

The pipeline is 30 miles in length and spans across the northern Wyoming County southward to connect with the Transco interstate pipeline system in Luzerne County. The 750 million cubic feet per day (“MMcfd”) capacity system will provide midstream services to the producers operationally active in the Marcellus Shale play. The program was bankrolled by funds that were added in the financing agreement during the purchase of Chief Gathering.

Presently, the partnership has secured contracts for reliable and efficient services on the Wyoming Pipeline from five independent producers and expects more agreements to come on the table. These agreements are wholly fee based and are insulated from any direct commodity price risks. For 2012, the initial firm transportation volume contracted by the producers totaled 255 MMcfd.

We believe the acquisition of Chief Gathering LLC is a strategic fit and will be a profitable addition to the partnership’s asset portfolio. The timely execution of this cost-effective project will enable the partnership to carry out its high-quality programs in the Marcellus play smoothly and also contribute positively to its future business plans in the region.

The partnership faced constraints in supplying volumes from its Susquehanna/Wyoming gathering facility to the Tennessee Gas Pipeline 300 Line which impacted PVR Partners’ operations. However, the partnership expects the Wyoming Pipeline-Transco Pipeline connectivity will lead to increase in volumes on the Susquehanna/Wyoming gathering facility by more than 20%.

The ongoing developments at the Susquehanna/Wyoming gathering unit will enable supply volumes to Wyoming Pipeline to further expand with the linking of additional wells thereby increasing productivity.

Although natural gas prices are currently on a downhill, we anticipate with rising demand for electricity in the U.S., gas prices will improve steadily, which could add to the partnership’s near term top-line. Nonetheless, unexpected infrastructure outages and pipeline accidents are risks that could pose serious challenges to the partnership’s operations.

We remind investors that the partnership had divested its Crossroads natural gas gathering system and processing plant for roughly $63 million to DCP Midstream Partners, LP ( DPM ), in mid-June 2012, to focus on the development of its core midstream business in the Marcellus shale and Texas plays.

The Zacks Consensus Estimates for the third quarter and full year 2012 for PVR Partners are pegged at 9 cents per unit and 54 cents per unit, respectively. One of its competitors is Missouri-based Arch Coal Inc. ( ACI ).

The partnership owns and operates a string of natural gas midstream pipeline systems and processing plants and is also involved in the management of coal as well as natural gas properties. PVR Partners’ current market capitalization stands at $2.21 billion.


Natural Gas Pipelines to Expand U.S. Supply


Natural gas pipelines coming into service by year end may boost deliveries from the Marcellus shale deposit in the U.S. Northeast by 30 percent, extending a supply glut that helped send prices to decade lows.

As much as 2 billion cubic feet of gas a day are set to flow from the lines in Pennsylvania, Ohio and West Virginia, bound for markets along the Eastern Seaboard, based on government and pipeline-company projections. About 1,000 Marcellus shale wells sit uncompleted, mainly because of a lack of pipeline infrastructure, according to the Energy Department.

Gas prices have dropped 60 percent since 2007 as producers used techniques such as hydraulic fracturing, or fracking, to reach supplies trapped deep in tight layers of shale. Gas futures tumbled to $1.902 per million British thermal units in April, the lowest price since 2002, as stockpiles ballooned during a mild winter and record U.S. production.

“There are new pipelines coming up and more Marcellus gas is going to flood storage going into winter,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said in a phone interview. “Unless you get a really cold winter, prices are going to be in the $2 range.”

Natural gas for October delivery rose 9.9 cents, or 3.4 percent, to settle at $3.023 per million British thermal units on the New York Mercantile Exchange. Prices have gained 1.1 percent this year.

The futures have averaged $2.679 since the April low after rising as high as $3.277. Prices may average $3.20 per million Btu during the first quarter of 2013, when demand peaks, based on the median of 18 analyst estimates compiled by Bloomberg.

Winter Demand

“Higher prices are all predicated on more normal space heating” this winter and demand from power generators burning gas instead of coal, Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a Sept. 21 interview. Viswanath expects first-quarter prices to average $3.60 per million Btu.

Cabot Oil & Gas Corp., which pumps gas from Marcellus deposits in Pennsylvania, has a break-even point that’s “probably below $2,” Chief Financial Officer Scott Schroeder said in a Sept. 14 interview from Houston.

About 4,525 miles of interstate gas pipelines serving consumers from Maine to Virginia have been put into service since 1996, Energy Department data show. About 693 miles of lines in the Marcellus, with a daily capacity of 8.06 billion cubic feet, are planned, under construction or already in service, according to Federal Energy Regulatory Commission data going back to 2006.

Fall Completions

New pipelines can quickly add 1 billion cubic feet a day of Marcellus gas to the market and as much as 2 billion, as projects with 3.5 billion cubic feet of additional pipeline capacity will be completed from September through December, Viswanath said. Marcellus gas output in May averaged 6.85 billion cubic feet a day, according to the most recent Energy Department data.

Shale gas has been key to the country’s move toward energy independence. Production gains helped the U.S. meet 81 percent of its energy demand in 2011, the highest level since 1992, according to U.S. Energy Department data compiled by Bloomberg.

Stockpiles in the week ended Sept. 14 totaled 3.496 billion cubic feet, 8.6 percent above the five-year average, the Energy Department said on Sept. 20. Supplies of gas may rise to a record 3.95 trillion by the end of October, before demand begins to rise with colder weather, according to department estimates.

Mid-Atlantic Lines

Spectra Energy Corp.’s (SE) Texas Eastern Transmission pipeline has a project that will go into service in November to carry 200,000 dekatherms (200 million cubic feet) a day from West Virginia to eastern Pennsylvania to connect to mid-Atlantic points, Brian McKerlie, vice president of business development at Spectra in Houston, said in a Sept. 19 interview.

Spectra is also building a pipeline to ship Marcellus gas to Manhattan by next November and is seeking customers to build a line to Florida, according to the company.

TransCanada Corp. (TRP), based in Calgary, is reversing its Niagara pipeline to start moving Marcellus gas from West Virginia into southern Ontario in November, Karl Johannson, executive vice president of natural gas pipelines with TransCanada, said in a Sept. 19 interview.

“It’s a very large resource and it’s going to change the flow of gas in North America,” Johannson said.

Williams Cos. projected that more than half of its estimated $11.5 billion of capital investments from 2012 through 2014 is in the Marcellus region, according to a Sept. 5 presentation by the Tulsa, Oklahoma-based company.

Rising Production

Kinder Morgan Energy Partners LP (KMP)’s Tennessee Gas Pipeline and a unit of Dominion Resources Inc. also have Marcellus projects under construction.

Marcellus will account for 22 percent of the 79 billion cubic feet a day of U.S. gas output in 2016, or about 17.4 billion a day, according to Goldman Sachs Group Inc. estimates. The region accounted for 5 percent of output last year and none in 2006, the bank’s data show.

Barclays Plc estimates that additional pipeline capacity may boost daily U.S. supplies by 1.8 billion cubic feet by the end of this year and by another 3.4 billion in 2013, the majority of it from Marcellus.

“We will be watching for evidence of a large uptick in production” in November, March and November 2013, Shiyang Wang, a Barclays analyst in New York, said in an Aug. 28 report.

Winter Demand

Laurent Key, a natural gas analyst with Societe Generale in New York, predicts that 900 million cubic feet a day of Marcellus production will come online in the fourth quarter, according to a Sept. 10 note to clients. Key’s first quarter price forecast is $3.07.

Demand for the fuel used by power plants and in home heating peaks in January and February, though last winter’s mildest weather since 2000 has helped keep inventory levels at seasonal records.

The movement of drilling rigs to the Eagle Ford shale in Texas from Haynesville in Louisiana will slow U.S. natural-gas output growth, David Greely, head of energy research at Goldman Sachs in New York, said in a Sept. 24 research report.

The additional capacity in Pennsylvania will cut pipeline costs, Richard Hunter, vice president of investor relations with Carrizo Oil & Gas Inc. in Houston, said in an Aug. 28 interview. Charges in Pennsylvania, where the company has wells, rose as high as $1.40 per thousand cubic feet recently, about double the rate before it started to run up in mid-2012, Hunter said.

“Starting in November of this year to December, that price is going to fall dramatically on new pipeline capacity,” to 50 or 75 cents per thousand cubic feet, he said.


Gas-products pipeline to advance Marcus Hook refinery’s rebirth

Sunoco announced Wednesday that its shuttered Marcus Hook refinery will be reborn as a facility to process Marcellus Shale natural-gas products, fueling new construction and new traffic through the Delaware River port.

Sunoco’s pipeline subsidiary, Sunoco Logistics Partners L.P., is moving forward with a plan to transport high-value propane and ethane by pipeline from western Pennsylvania to Marcus Hook, where the materials will be processed in a new plant and shipped by sea to domestic and export markets.

State officials hailed the project – which Sunoco calls Mariner East – as a big boost for Pennsylvania’s Marcellus Shale industry by connecting the areas producing natural gas in western Pennsylvania to markets linked to Philadelphia.

“I have long held that the Marcellus Shale is an important resource that over time would benefit the entire commonwealth,” Gov. Corbett said in a statement.

The pipeline project is the latest industrial venture built on confidence that the Marcellus Shale, where full-scale production began barely four years ago, represents a long-term, reliable energy supply.

Sunoco Logistics announced the Mariner East project in 2010 as a way to repurpose an existing, underused Sunoco pipeline that has historically moved refined products from east to west.

Sunoco Logistics and its partner, MarkWest Energy Partners L.P., conceived of reversing the flow of the pipeline to move the abundance of natural-gas liquids derived from the “wet” gas produced in western Pennsylvania. MarkWest, based in Denver, is a leading processor of natural-gas liquids.

The Mariner East project envisions moving ethane and propane from Marcus Hook by sea to petrochemical plants overseas or along the Gulf Coast that value the natural-gas liquids as a raw material for plastics.

Range Resources Corp., the Marcellus pioneer whose drilling operations are concentrated in liquids-rich parts of southwestern Pennsylvania, has signed a 15-year agreement as the anchor shipper. Range has committed to provide 40,000 barrels of the project’s 70,000-barrel-per-day capacity.

Range Resources, based in Fort Worth, Texas, has already lined up a customer for its ethane. It announced Wednesday that it has signed a separate 15-year agreement with affiliates of INEOS A.G., a Swiss petrochemical producer that will take delivery of the material at Sunoco’s Marcus Hook docks. INEOS has plants in Europe, the Americas, and Asia.


First deep-shale well drilled in Erie, Crawford

COCHRANTON — Gas wells are a familiar sight here in the rolling farmland of southern Crawford County.

East Fairfield Township Supervisor Bob O’Brien can see a half dozen of them from his kitchen window on Franklin Pike.

But the latest well isn’t like all the others.

Lippert 1H, located at 6321 Pettis Road, was drilled this summer into the Utica Shale to a depth of 7,236 feet, before crews drilled nearly another mile horizontally.

That makes it the first deep shale well drilled in this corner of Pennsylvania, said Gary Clark, spokesman for the state Department of Environmental Protection.

A DEP drilling map shows a heavy band of drilling activity that extends from southwestern Pennsylvania, across the center of the state to northeastern Pennsylvania.

Gas exploration companies continue to drill so-called shallow wells throughout the state.

But until now, the Utica and Marcellus formations were largely untapped in the uppermost corner of northwestern Pennsylvania and a broad swath that included more than 20 counties in the southeastern part of the state.

That changed this summer, at least in Crawford County, when rigs and crews working for Texas-based Range Resources arrived in this rural township of about 850 people.

Range Resources, which developed some of the state’s first successful wells into the Marcellus Shale, drilled the Crawford County well in July.

The entrance to the well site is blocked by no-trespassing signs and by a security building, staffed by a guard.

Horizontal drilling is making it possible to reach the reserves under hundreds of acres from one location.


Pipeline set to link pair of projects – Marcellus Shale

Mike Stice, President of Chesapeake Midstream Development, a subsidiary of Chesapeake Energy, spoke during the Marcellus Midstream Conference & Exhibition in Pittsburgh this week. He said the potential for collecting methane, ethane, butane, propane, pentane and even oil make the Utica and Marcellus shale formations very attractive to companies like his.

“The diversity of the opportunities is where the strength lies,” he said. “We find ourselves on the cusp of a breakthrough for natural gas and oil.”

Chesapeake Energy and its partners will run a 12-inch diameter pipeline to connect the northern and southern portions of its $900 million natural gas processing complex in Harrison and Columbiana counties.

In total, the Oklahoma City-based company plans to lay 200 miles of pipelines across Eastern Ohio in 2012, most of which will be located in Harrison, Jefferson, Columbiana and Carroll counties.

Chesapeake is building the plant with M3 Midstream and EV Energy Partners. Frank Tsuru, president and chief executive officer of M3, also spoke at the conference, highlighting the 12-inch pipeline that will connect the Harrison and Columbiana portions of the major complex.

According to a map on the M3 website, it appears the Harrison County portion of the complex would be built near Scio, while the Columbiana County part would be located near Hanoverton.

The processing facility to be located in Columbiana County will have an initial capacity of 600 million cubic feet per day. Natural gas liquids, via the 12-inch pipeline, will be delivered to a central hub complex in Harrison County that will feature an initial storage capacity of 870,000 barrels. The Harrison County facility also will have fractionation capacity of 90,000 barrels per day, as well as a substantial rail-loading facility, according to Chesapeake.

Chesapeake officials also want to make sure the industry flourishes in Ohio, noting they agree with a comment Gov. John Kasich made during his State of the State speech at Steubenville High School earlier this year.

During the conference, Mark Halbritter, managing director of commercial activities for Dominion Transmission, discussed the company’s $500 million processing complex, which is scheduled to open south of Moundsville by the end of this year. He said a second phase of the plant that would be completed next year could raise the final cost to about $800 million. He said the facility is strategically positioned along the Ohio River so it can process gas derived from the Utica and Marcellus formations.

As for ethane that is derived at the Natrium site, Halbritter said the complex will be able to send ethane to Canada, the Gulf Coast, or to any local ethane cracker, such as the one Royal Dutch Shell plans for Monaca, Pa.

“We expect enough ethane to support both pipelines and up to two crackers,” Halbritter’s presentation states, adding the company anticipates more than 400,000 barrels of ethane will be derived from the Marcellus and Utica shales by 2020.

Jeannie Stell is the editor of Midstream Business magazine, said industry leaders have learned valuable lessons over the past few years of working in the Marcellus and Utica shales.

“It is never too early to start applying for a permit,” she referenced as one of these lessons. A second lesson, Stell added, is that laying pipelines in the sometimes rugged terrain of West Virginia, Ohio and Pennsylvania can be more challenging than doing so in the relative flat country of Oklahoma and Texas.

MATCOR was an active participate and exhibitor at this conference.


$520 million Marcellus Lateral pipeline project in doubt

A $520 million pipeline project thought to have the potential to support 2,500 Ohio construction jobs might be dead.

The Ohio Power Siting Board, the body that regulates major utility projects in Ohio, rejected the application for the Marcellus Lateral Pipeline more than a year ago. Kinder Morgan, a pipeline developer, owner and operator out of Houston, has made no official moves on the project since it submitted that application in November 2010.

The 16-inch pipeline was to snake 240 miles under Ohio, from the border with the West Virginia panhandle to a connection with larger pipeline just west of Toledo. It was designed to carry natural gas liquids from the Marcellus Shale formation, a layer of rock rich in oil and gas that sits underneath much of western Pennsylvania, West Virginia and the border counties of Ohio.

Its path would have crossed 15 Ohio counties, including Muskingum, Coshocton, Knox, Morrow, Marion, Crawford and Sandusky.

This past spring, the Bowling Green Sentinel-Tribune and Mount Vernon News quoted a Kinder Morgan spokesman as saying the project still was a go and to expect construction by the end of 2011. The company would first need to get approval from the siting board, which it has not sought, a board spokesman said.

When asked to comment about the project’s status, Kinder Morgan spokeswoman Emily Mir wrote: “We continue to evaluate a number of projects in the Marcellus area but do not have any definite information at this time on the lateral project other than as part of our re-evaluation we are withdrawing our application for the project.”

She declined to answer further questions.

Dale Arnold, director of energy policy for the Ohio Farm Bureau, had been conducting educational meetings with bureau members on pipeline issues in advance of the Marcellus Lateral Project.

He said the wording of Kinder Morgan’s statement suggests it is moving on to something else. Arnold said he has seen alternative energy projects (also governed by the siting board) pulled in the same manner.

“From my experience on work with wind and solar projects, when a company withdraws an application, they are looking at something entirely different,” he said.

The state is “still considering the application active, but just delayed,” said Matt Butler, spokesman for the Public Utilities Commission of Ohio, which oversees the siting board.

As of Friday, Kinder Morgan had made no filing to withdraw its application, which would close the case.

The application was deemed incomplete in 2011 because it failed to include ecological data and enough detail on an alternative route.

Butler said the commission last heard from Kinder Morgan in the fall of 2011. The company relayed it was evaluating options at that point, he said.

Local leaders in the path of the pipeline are curious about Kinder Morgan’s plans.

Jenny Vermillion, a commissioner from Sandusky County, said her office had tried contacting the company in December, but had no success.

Jim Porter and Steve Douglass, commissioners in Muskingum and Guernsey counties, respectively, say they haven’t heard anything new about the project.

“They have not talked to us for a year of maybe longer,” Douglass said.

Douglass said Kinder Morgan had almost daily contact with Guernsey’s county engineer when the Rockies Express Pipeline, a multi-billion dollar interstate pipeline that was built in Ohio in 2009, was in construction.

The pipeline plan was announced by Kinder Morgan in April 2010. At that time, the timeline called for construction to begin in July 2011 and finish one year later.

In a year-end report to investors, filed a month after its application was submitted to the power siting board, Kinder Morgan talked of the need to “continue to pursue commercial agreements with shippers.”

The company, according to an October 2010 investor presentation, was seeking commitments from producers that they would use the lateral. Combined, Kinder Morgan was waiting for a promise of at least 25 million barrels per day for 10 years before it moved forward.

Richard Kinder, chairman and CEO of the company, told analysts during a conference call earlier this month about no fewer than five projects — costing more than half a billion dollars — slated to improve the company’s liquid products transportation. No mention was made of the Marcellus Lateral.

Its biggest investment this year is likely to be the expected closing of a $38 billion deal to buy rival El Paso. El Paso operates a gas pipeline near Glouster that was the source of an explosion that destroyed three homes and a barn and damaged a second barn in November.


Industry Challenges Texas Pipeline Ruling

Pipeline companies are asking the Texas Supreme Court to overturn a ruling they say jeopardizes new projects, escalating the battle over the costs of transporting oil and natural gas produced by the energy boom in South Texas.

The industry says its costs are soaring as landowners, bolstered by a recent appellate-court opinion, seek much higher payments for damage to their property values from pipelines and reject what they see as lowball offers from companies. Under Texas law, companies can build pipelines across private property over landowners’ objections, but must pay for use of the land and any damage to the value of the rest of the property.

The dispute in the South Texas case could have ramifications in other states where pipelines are proliferating along with new oil and gas fields, some legal experts say, as lawyers and appraisers build on arguments that have gained traction in court.

A year ago, an appellate court in San Antonio upheld a jury verdict against LaSalle Pipeline LP that awarded $600,000 to the Donnell family of McMullen County, Texas. The award was mostly for the loss of value to an 8,000-acre ranch after LaSalle built a natural-gas pipeline that stretched for four miles across the property.

LaSalle has appealed to the Texas Supreme Court, which has asked for briefs but not yet agreed to hear the case. Another pipeline company filed an amicus brief last month.

In the case, an appraiser hired by the family calculated the loss in value by studying sales of similar properties nearby, and found that those with pipelines sold for 20% less on average than those without pipelines.

A lawyer representing the family declined to comment on the case.

LaSalle didn’t dispute that it should pay for the rights to the 17 affected acres, but it said the pipeline didn’t diminish the value of the overall property at all. The Houston-based company argued that the landowner’s appraiser failed to consider factors besides a pipeline that could affect what people would pay for it, including location, shape and access to water.

LaSalle also maintained the landowner’s appraiser didn’t submit figures to the jury that would support his calculations.

Tom Zabel, a Houston lawyer representing LaSalle and other pipeline companies, said that costs to obtain rights of way have increased fivefold or sixfold in South Texas since the verdict in the Donnell trial.

In the Southwest alone, the Interstate Natural Gas Association of America estimates the region will need 50,100 miles of gathering pipelines, which take gas from wells to processing plants, between 2011 and 2020, 31% of the total nationally.

Energy Transfer Partners LP, a major pipeline operator that filed the amicus brief with the court in support of LaSalle, said that landowners, armed just with the appellate opinion, have argued in more than 20 condemnation hearings that pipelines would reduce their property values by at least 20%. Under state law, local panels hold hearings when pipeline companies sue landowners to obtain rights to build on their property.

Dallas-based Energy Transfer argued that if allowed to stand, the rationale affirmed in the appellate opinion would leave companies unable to “predict the costs associated with their projects and the viability of pipelines.”

Barry Diskin, a professor at Florida State University who has done work for pipeline companies, said he has never seen a study that found a systematic pattern in property values tied to pipelines. “I’ve not seen one, and I’ve looked,” he said.

But just the possibility of a major explosion is enough, in the real world, to depress property values near pipelines, said Marcus Schwartz, a lawyer in Halletsville, Texas, who represents landowners.