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Regency Continues Building on Haynesville Growth

Dallas-based Regency Energy Partners LP and its partners plan to spend $47 million for a pipeline extension of their Haynesville Expansion Project in North Louisiana, increasing capacity on the Regency Intrastate Gas System (RIGS). Regency CEO Byron Kelley told NGI last week the Haynesville play could grow to produce 6-7 Bcf/d.

The extension -- called the Red River Lateral -- would add about 100,000 MMBtu/d of capacity to the current project, bringing total capacity to approximately 1.2 Bcf/d, Regency said.

"The rapid development of the Haynesville Shale has accelerated our growth opportunities around the RIGS system," Kelley said. "The Red River Lateral expands our reach deeper into the sweet spot of the Haynesville Shale and strategically positions the pipeline for further growth to meet rising producer needs. We believe this is the first of several opportunities to extend the Haynesville Expansion Project."

There's plenty of room for infrastructure growth as the Haynesville play has room to grow production.

"The analytical work that we did last year led us to believe that -- not the physical capacity -- but the market capacity for Haynesville gas in particular was probably 4 to 4 and a half Bcf/d of gas essentially in the Delhi [LA] area where most of these [Haynesville pipeline] projects are going to," Kelley told NGI. "I still stand with that number but believe there's some dynamics happening that could push that number up a little bit, maybe another half a billion [cubic feet] a day, and that's principally related to the declines that we've seen in offshore deliverability for which it is going to be more difficult to come back and compete with these shale plays."

Eventually, Haynesville production will have to find a new market as it grows to 6-7 Bcf/d, which Kelley said he expects it will. "...[Y]ou're not going to put 7 Bcf/d into Delhi. So if that becomes reality there will be another pipe built to take some of that gas somewhere else," he said.

The Red River Lateral would add approximately 12.5 miles of 36-inch diameter pipe to the Haynesville Expansion Project (see NGI, Nov. 17, 2008; Sept. 15, 2008). The Red River Lateral would reach farther southwest to the west side of the Red River into Red River Parish, LA, an area considered to be one of the richest and most active in the Haynesville Shale, Regency said.

All of the approximately 100,000 MMBtu/d of incremental capacity on the Red River Lateral has been contracted and 75,000 MMBtu/d of additional capacity on the existing Haynesville Expansion Project has been contracted as well. With the exception of a small amount of the capacity currently reserved for operational flexibility, the 1.2 Bcf/d of capacity is fully subscribed, Regency said. The expansions are underwritten by firm transportation agreements with 10-year terms, and approximately 85% of projected revenues are expected to come from reservation fees.

The Red River Lateral is to be funded by each of the partners of the joint venture that owns RIGS in accordance with their ownership percentages. Regency has a 43% general partnership interest in the joint venture, while Alinda Capital Partners LLC and an affiliate of GE Energy Financial Services have 50% and 7% general partnership interest, respectively. The partnership was struck in the first quarter (see NGI, March 2) and was recently modified to give Regency its 43% stake. "Once the project is in service, the joint venture intends to pursue debt financing for future development around the RIGS system," Kelley said.

Construction of the Haynesville Expansion began May 1 and is on budget and on schedule to meet the planned in-service date of Dec. 31. Construction on the 46 miles of 36-inch diameter pipeline is mechanically complete and is now being commissioned, and construction on the 75 miles of 42-inch diameter pipeline began in late June. Construction of the Red River Lateral is expected to begin this month; the project is projected to be in service by the end of the year.

Last week Regency announced an approximately $44 million pipeline extension of its Nexus Gathering System in North Louisiana. Called the Logansport Expansion, the project would add about 300 MMcf/d of gathering capacity to the system (see NGI, Sept. 14).

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