Dealing with an Eagle Ford gas flow that has turned out to be much more liquids-rich than expected, Regency Energy Partners LP announced Monday that it will expand its Edwards Lime gathering joint venture in the South Texas shale play to increase the system's capacity by 90 MMcf/d to 160 MMcf/d, and provide for additional crude transportation and stabilization capacity of 17,000 b/d.
"We are seeing much richer gas than anybody expected, which is a good thing for the long term. And I think, net-net, it's going to be an overall benefit," CEO Mike Bradley said in describing Regency's Eagle Ford experience to analysts on a 1Q2012 earnings conference call recently.
"In the short term here, we've had to look at modifying some of our facilities to handle more liquids than what was anticipated. So that's what we're in the process of doing, adding facilities to accommodate the higher liquids. We've got some condensate lines we're going to be building here in the next -- one comes online here in Q2 and the other one comes online in Q4 so we can more efficiently move the liquids to end markets...But the good news is, it's very, very rich gas...
"It's a matter of getting the liquids moved out, or stored on a temporary basis to get them moved out because the liquids coming in are much higher than what anybody expected," Bradley said.
Responding to a question, Bradley said Regency was dealing with gas that produces about six to eight gallons of natural gas liquids (NGL) per Mcf. On average "wet gas" is expected to contain five or six gallons of NGLs per Mcf, whereas dry gas usually has less than one gallon of recoverable liquids per Mcf.
Bradley noted that in South Texas "rig counts have continued to increase, rising by 42% from the first quarter of 2011 to the first quarter of 2012. We saw volumes increase over 113% from Q1 of '11 to Q1 of '12," which includes the volumes associated with Regency's Eagle Ford expansion efforts. Management expects volumes will continue to ramp up over the next few years.
Behind the Niobrara/Denver-Julesburg Basin, the Eagle Ford Shale has seen the largest increase in drilling activity over the last year, according to NGI's Shale Daily Unconventional Rig Count. For the week ending May 11, there were 260 rigs actively drilling for oil and gas in the play, which is up 2%, or five rigs from the previous week, and up 50%, or 87 rigs over the similar week one year ago.
Regency is increasing its total 2012 capital expenditures to between $775 million to $825 million, primarily related to the increased growth capital for the Eagle Ford expansion project and for its contract treating division.
Regency owns a 60% interest in Edwards Lime and operates the assets on behalf of the joint venture. The remaining 40% interest is owned by Talisman Energy USA Inc. and Statoil Pipelines LLC. Regency's general partner is Energy Transfer Partners LP.
"This expansion will provide additional natural gas and condensate gathering and treating capacity in the liquids-rich Eagle Ford Shale, and we believe this will be an accretive investment for Regency," said Regency's Keith Crawford, regional vice president.
"In addition, we are excited to work with our joint venture partners, who have dedicated production within an area of mutual interest to this project which will further expand Regency's presence in the Eagle Ford Shale," continued Crawford.
Contracts on the expansion are fee-based, which includes reservation fees. Capital expenditures related to this latest expansion are expected to total about $150 million, with Regency responsible for $90 million; this amount was included in its previously announced 2012 growth capital projections. The project is expected to be complete in the fourth quarter.