Sanchez Energy Corp. (SN) has struck joint venture (JV) agreements with Targa Resources Partners LP for construction of a cryogenic natural gas processing plant and associated high-pressure gathering pipelines near the producer's Catarina asset in the Eagle Ford Shale.
The assets would better position the company's production to serve the Mexico export market as well as potential liquefied natural gas (LNG) exports, it said. Ultimately, the assets could wind up in a master limited partnership.
The processing plant is to be in La Salle County, TX, and is expected to have initial capacity of 200 MMcf/d, expandable to 260 MMcf/d. Sanchez Energy plans to invest $115 million and receive a 50% ownership interest in the plant and the 45 miles of gathering pipelines that will connect its existing Catarina gathering system. Targa is to hold all of the transportation capacity on the pipeline, and the gathering joint venture will receive fees for transportation.
"Our participation in the joint ventures and commitment to anchor these projects are expected to result in access to attractive midstream assets that are central to SN's major development activity in South Texas," said Sanchez CEO Tony Sanchez. "The joint ventures are expected to also improve our access to end markets, including the developing Mexico and global LNG markets, and provide opportunities to increase revenue through utilization of the new midstream system to transport and process third-party volumes."
Sanchez Energy has 125 MMcf/d of plant processing and associated pipeline capacity for the first five years of the agreements and has dedicated the Catarina acreage and all production developed during the 15-year term. The company has the option to deliver additional volumes and commit additional acreage as production increases.
"Importantly, these South Texas midstream assets are expected to provide stable cash flows which a master limited partnership may find attractive and financeable at favorable rates," CEO Sanchez said. "As the project develops, we intend to explore potential alternative financing or other options for the joint ventures to maintain our liquidity, while also exploring whether there are any mutually beneficial funding strategies with Sanchez Production Partners LP that might be attractive to us."
The plant and pipelines will be built and operated by Targa. The plant is expected to be operational by early 2017.
Last month, Sanchez Energy sold Eagle Ford Shale midstream assets to Sanchez Production Partners LP, with proceeds pegged to fund potential acquisitions as well as drilling (see Shale Daily, Sept. 29).