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Rover Phase 2 Ready by Early December, Says ETP

Construction of Rover Pipeline’s Phase 1A should be completed next week, with Phase 2 on track to start-up in late November or early December, the management team for Energy Transfer Partners LP (ETP) said Wednesday.

Speaking to analysts during a 2Q2017 conference call, management for the Dallas-based midstreamer, which is backing Rover, said an ongoing FERC investigation into diesel fuel found near a Rover horizontal directional drilling (HDD) site shouldn't present any issues in terms of bringing the project online before the end of the year, pending approval by the Federal Energy Regulatory Commission.

"We expect to be finished with the construction of Phase 1A from Cadiz, OH, to Defiance, OH, by next week and plan to immediately ask FERC for permission to bring Phase 1A into service," CFO Tom Long said. "On Phase 1B...once we receive approval to drill under Captina Creek, we believe we will have it drilled and completed in approximately 40 days, at which point we will request FERC permission to bring this segment into service.”

ETP now is “waiting on approval from FERC to resume drilling the HDDs,” Long said. “In the meantime, we continue construction on all phases of the pipeline except the HDDs. Assuming quick resolution by FERC regarding Phase 2, we expect to be in service by the end of November or early December, with full commercial service in January."

COO Matt Ramsey said, "We essentially have 100% of the pipe in the ground" for Phase 1A and 1B "and we're just waiting on the last HDDs. And on the mainline of Phase 1B, we have Captina Creek, which is really the last mainline drill to be done. So we plan to finish up Phase 1A and ask FERC immediately if we could put that segment into service, then follow up close thereafter with Phase 1B. So yeah, we are very confident we're going to get this thing in service."

FERC has said it won't issue an in-service authorization for Rover until it is satisfied clean-up has been completed following an April HDD drilling fluids release near the Tuscarawas River in Stark County, OH.

"We've been working closely with" the Ohio Environmental Protection Agency (Ohio EPA) "toward resolving all those issues in Ohio," Ramsey said. "We're under an order from the Ohio EPA, which we are fully complying with...We expect to have the Tuscarawas River clean-up done for the inadvertent release by mid-August, and we're in the process of cleaning up the quarries now, and I think those issues are going to resolve themselves pretty quickly…

“FERC has stopped us on drills up there, but again, we are having continuing conversations with them. We hope to have all this resolved and moving forward pretty quickly."

Asked about the potential for Rover’s in-service date to be impacted by FERC's investigation of diesel fuel at the Tuscarawas site, Ramsey said, "We've made it very clear, we do not know the source of the diesel in the drilling mud. There have been a lot of theories put out there about it, but we actually do not know the source of it.

"So we continue to work with FERC, and I don't think that's going to be an issue as far as putting the pipeline into service. They've made things pretty clear that we have been completely transparent with them, so I think that we will get through that issue with FERC without any real big problems."

In letter sent earlier this month to FERC's Office of Energy Projects, Rover officials said that if they "were to discover that a contractor or one of its employees intentionally added" diesel "to the slurry in violation of Rover's approved protocols and HDD plans, Rover would take all appropriate action available under the law. However...the testing results and evidence to date do not support the allegations."

Calling the data "inconclusive," Rover officials said the test results "could reflect an intentional introduction of diesel, an unreported spill, or sabotage" carried out by project opponents.

ETP recently sold a 32.44% stake in Rover to private equity firm Blackstone for roughly $1.57 billion. The 3.25 Bcf/d Marcellus/Utica shale takeaway pipeline is one of ETP's most anticipated projects in development, but the company has been busy pursuing several growth opportunities.

In West Texas, ETP's 200 MMcf/d Arrowhead processing plant serving the Permian Basin’s Delaware sub-basin in Reeves County came online ahead of schedule, while the 200 MMcf/d Rebel II processing plant should begin service in 2Q2018, management said.

"Including the Panther plant, which came online in December of last year...we are nearing capacity in the Permian, and we'll need Rebel II as soon as possible to meet growing producer demand in the region.” Residue gas and natural gas liquids (NGL) "will be delivered into ETP systems," Long said.

Long also said ETP plans to construct the Red Bluff Pipeline, "which will run through the heart of the Delaware Basin and will connect our Orla plant to the Waha plant to provide residue gas takeaway." The pipeline is to run 80 miles and consist of 30- and 42-inch diameter pipe, with a capacity of 1.4 Bcf/d.

Meanwhile, construction on the Mariner East 2 NGL pipeline is progressing. "Approximately 80% of the pipe has been strung, more than 70% is welded and over half has been lowered in and backfilled," Long said. "We have made significant progress in resolving issues with the Pennsylvania Environmental Hearing Board to allow us to resume drilling various HDDs in Pennsylvania."

Intrastate natural gas transportation volumes were 9,254,999 MMBtu/d for the quarter, up from 8,659,255 MMBtu/d in 2Q2016. Interstate natural gas volumes were 5,299,099 MMBtu/d versus 5,363,658 MMBtu/d in the year-ago.

In ETP's midstream segment, gathered volumes totaled 10,961,338 MMBtu/d with 473,699 b/d of NGLs produced, compared with 10,037,648 MMBtu/d and 468,732 b/d a year ago.

ETP reported revenues for the quarter of $6.58 billion versus revenues of $5.29 billion in the year-ago period.

Net income was $292 million in 2Q2017, down from year-ago net income of $472 million. ETP lost $34 million in the quarter from hedging bets, versus a gain of $18 million in the year-ago period. Distributions to limited partners climbed to $589 million from $492 million a year ago.

General partner Energy Transfer Equity LP reported net income of $117 million versus $424 million in the year-ago quarter.

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