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Haynesville, East Texas Escape Cutbacks

The economy and low commodity prices scuttled capital spending plans this year for scores of U.S. energy companies, but for many operators exploring and developing the natural gas-rich area that straddles a region covering East Texas and northern Louisiana, that's not the case.

Massive budget cuts have led producers to lay down rigs across the Rocky Mountain region and cut in half the rig count in what's still the most prolific play in the United States, the Barnett Shale of North Texas. However, southeast of the Barnett play, there's one region that companies have been reluctant to exclude.

In just the past two weeks two gas pipeline projects moved forward to carry gas supplies east from northern Louisiana and East Texas, a region that holds umpteen amounts of gas deep within the Haynesville Shale, the Deep Bossier/Cotton Valley trend and the Travis Peak and James Lime formations.

On Friday midstream operator Regency Energy Partners LP said it had secured Alinda Capital Partners LLC and an affiliate of GE Energy Financial Services as joint venture (JV) partners to finance and construct its Haynesville Expansion Project (HEP), which initially would transport up to 1.1 Bcf/d.

The JV followed a binding open season launched earlier in February by Energy Transfer Partners LP (ETP) to solicit interest in the Tiger Pipeline, a 180-mile, 42-inch diameter interstate system that also would carry supplies from the Haynesville Shale. The Tiger pipe is expected to have an initial throughput capacity of at least 1.25 Bcf/d, but it may be increased to 2 Bcf/d based on the open season, which closes March 20. ETP already has a 15-year commitment from Chesapeake Energy Marketing Inc. for firm transportation capacity of 1 Bcf/d.

The pipe expansion announcements parallel news from several of the biggest producers in the region, some of which have curtailed spending, but not in their Texas and Louisiana holdings.

Petrohawk Energy Corp. last week announced plans to spend $1 billion for its drilling program in 2009, and nearly three-quarters of the budget is to be spent in northwestern Louisiana (see related story). In January junior explorer Comstock Resources Inc. said it would direct $450 million to prove up its leasehold in Louisiana and to develop its Cotton Valley leasehold (see NGI, Jan. 12).

A "huge amount of people are dropping rigs" in the Barnett Shale of Texas and "likely moving their activity to Haynesville," EOG Resources Inc. CEO Mark Papa said last month (see NGI, Feb. 9). And at Cambridge Energy Research Associates' CERAWeek in Houston last month, activity this year in the Haynesville Shale was called the "most promising" and most likely to gain instead of lose traction (see NGI, Feb. 16).

Regency's HEP, which is slated to be in service by the end of this year, would more than double the midstream operator's pipeline system in northern Louisiana. Regency has secured commitments for 84% of the pipeline's capacity, and it would continue to develop and operate the system through the new JV.

HEP first was announced last September, but as the financial turmoil escalated, the partnership cut back, taking the pipe expansion with it (see NGI, Nov. 17, 2008). Now back on track, the system would add 1.1 Bcf/d of capacity to Regency's pipeline system in three stages: a 28-mile, 36-inch diameter Bienville Loop, a 23-mile 36-inch diameter Elm Grove Pipeline and a 77-mile, 42-inch diameter Winnsboro Loop. The system would interconnect with Regency's interconnections with the Columbia Gulf, Texas Gas, Trunkline and ANR pipelines and add 14,200 hp of compression at the Elm Grove and Haughton Stations.

In exchange for a 38% general partnership interest in the joint venture, Regency is contributing its Regency Intrastate Gas System (RIGS) in northern Louisiana, valued at $400 million. The GE unit agreed to contribute $126 million in return for a 12% stake. Alinda, an independent private investment firm that specializes in infrastructure investments, agreed to contribute $526.5 million in cash in return for a 50% stake.

Regency is to receive a cash payment equal to the total HEP capital expenditures paid through the closing date, which is scheduled by April 30. The JV would be operated by a Regency affiliate, and Regency would offer the JV partners the first option to acquire or pursue natural gas transportation and storage opportunities Regency identifies in northern Louisiana.

ETP and the Chesapeake Energy Corp. subsidiary unveiled plans for the Tiger pipeline in January (see NGI, Feb. 2). It would connect to ETP's dual 42-inch diameter pipe system near Carthage, TX, and extend through East Texas and northwestern Louisiana, terminating near Delhi, LA. Interconnects would be available with "at least seven interstate pipelines at various points in Louisiana," ETP said. Depending on regulatory approvals, Tiger could be in service in the first half of 2011.

When completed, the Tiger pipeline would provide takeaway capacity from the increasingly constrained Carthage Hub area in East Texas, which receives gas from several producing basins in Texas, including the Barnett Shale, Deep Bossier Sands and the Permian Basin.

ETP subsidiary ETC Tiger Pipeline LLC is conducting the bid process for customers that want contract terms of at least 10 years. For information contact Luke Fletcher at (210) 403-6492 or luke.fletcher@energytransfer.com; or Lee Hanse at (210) 403-6455, lee.hanse@energytransfer.com. Information is also available at www.energytransfer.com.

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