As it goes with producers, so it goes with the midstream: liquids-rich gas is the most desirable to have and to handle, and Boardwalk Pipeline Partners LP's Boardwalk Field Services LLC is expanding its systems accordingly.
On Monday Boardwalk Field Services said it is expanding its Eagle Ford Shale gathering system and constructing a cryogenic gas processing plant to handle growing production. The project is supported by long-term, fee-based gathering and processing agreements.
"This is a major step in the implementation of our strategy to serve the growing needs of producers in the prolific Eagle Ford Shale basin, and we are pleased to have Statoil Natural Gas LLC and Talisman Energy USA Inc, as anchor customers," said Boardwalk CEO Stan Horton. "We have long-term processing agreements and associated gathering agreements for approximately 50% of the processing plant's capacity, and we are in discussions to sell the remaining gathering and processing capacity to other credit-worthy customers with long-term, fee-based agreements.
"Production in this rich-gas area is outpacing existing infrastructure, and therefore timely execution of our South Texas expansion will fill a critical need for capacity."
Boardwalk said it will add about 55 miles of 20- and 24-inch gathering pipeline to its existing 340-mile South Texas gathering system. Once complete, the combined pipeline system will have the capability to move more than 300 MMcf/d of liquids-rich gas from Karnes and Dewitt counties in the heart of the Eagle Ford play to the new Flag City gas processing plant.
"The existing South Texas gathering system gave us a good starting position in the Eagle Ford, and much of the additional pipeline can be built on existing right of ways," Horton told financial analysts Monday during an earnings conference call.
The plant is to be located near Edna, TX, and will have capacity of 150 MMcf/d. Boardwalk Field Services will also provide redelivery of processed residue gas to a number of interstate and intrastate pipelines, including Boardwalk's Gulf South Pipeline.
The gathering expansion and processing plant are estimated to cost $180 million and are expected to be placed in service during the first quarter of 2013.
The Eagle Ford effort joins another Boardwalk project under way that targets Marcellus Shale gas. There the partnership is building a $90 million gathering system in northeastern Pennsylvania to connect Southwestern Energy Co. wells in the region to the Tennessee Gas Pipeline Co.'s Line 300 (see Shale Daily, Oct. 11, 2011).
"The Marcellus and Eagle Ford are two of the most profitable shale plays in North America," Horton said. "Rigs are still growing in both of these liquids-rich areas, and significant midstream infrastructure is still needed. That is why Boardwalk Field Services has focused its efforts on producer needs in these areas."
In the Southeast last fall, Boardwalk Pipeline Partners and a joint venture it formed with an affiliate of its general partner agreed to pay $550 million to acquire Petal Gas Storage LLC and Hattiesburg Gas Storage Co. from Enterprise Products Partners LP. These assets are well suited to meet growing gas demand in the region, particularly from power generators, Horton said Monday. He said demand growth from power generators and industrial load in the coming years could reach 10-15 Bcf/d "with a large concentration expected to be in the Southeast."
As for the broader gas market, weak prices have generally been a wash for the partnership, Horton told analysts.
"The drop in natural gas prices, caused in part due to the unusually warm winter weather, has had both positive and negative impacts on Boardwalk," he said. "On the positive side, we've seen more demand for storage services, both park-and-lend and interruptible storage. The prices for these services are currently above the low levels we experienced earlier in 2011.
"On the negative side, volumes are down due to the lower winter demand, impacting volumetric-driven revenue. For the most part, the positives and negatives have offset each other and are not having a significant impact on us."
Operating revenues of $296.9 million for the fourth quarter represented a 2% decrease from $302.0 million in the year-ago period. Net income of $74.6 million for the quarter was a 16% decrease from $88.9 million in the comparable 2010 period. "Operating results for the fourth quarter of 2011 were primarily driven by lower operating revenues due to lower throughput, mainly from mild winter weather and lower natural gas prices negatively impacting revenues from retained fuel," the partnership said.