Midstream operations in the Marcellus Shale are significantly expanding for Penn Virginia Resource Partners LP (PVR), after the partnership inked agreements with four of the biggest natural gas producers to extend its Lycoming County, PA, pipeline system to provide access to multiple markets.
The long-term fee-based agreements, which PVR said would carry no direct commodity price risk, were inked with Royal Dutch Shell plc subsidiary SWEPI LP, affiliates of Southwestern Energy Co., Range Resources Corp. and privately held Inflection Energy LLC.
"The further expansion of PVR's Lycoming County system, ultimately with a connection to the Tennessee Gas Pipeline [TGP] 300, will allow us to realize our long-term vision of providing our Marcellus producers with access to multiple gas markets and further expand our midstream business in the Marcellus Shale," said William H. Shea Jr., who is CEO of PVR's general partner.
"We believe that the continued development of our Lycoming County system, together with our Wyoming County system and the recently completed addition of Chief Gathering LLC's midstream assets, position PVR as the midstream service provider of choice in six of the most prolific counties in the Marcellus Shale region in northeast Pennsylvania."
The partnership last week completed its $1 billion acquisition of the Chief midstream assets, which include six gathering systems serving more than 300,000 dedicated acres in prolific gas-producing counties of northeastern Pennsylvania (see Shale Daily, April 11).
Under the agreements with Southwestern, Shell and Range, PVR would extend its existing 30-inch diameter trunkline about 19 miles north through Lycoming County and into Tioga County, PA. Construction of phase three of the trunkline is scheduled to begin in the next two weeks and be finished before the end of the year.
PVR also is building lateral pipelines for Shell and Range to the trunkline for transport to Transcontinental Gas Pipe Line Co. (Transco), and by early 2014, to TGP 300.
A 15-year agreement with Southwestern is a firm take-or-pay capacity commitment in years two through eight, with an option to increase the commitment over the period. The agreement also gives Southwestern interruptible capacity as it is available.
Under the 20-year agreement with Shell, a 24-inch diameter pipeline lateral would be completed by late this year to connect the Lycoming County system to Shell's Texas Creek gathering system in Bradford County, PA. PVR also is building a 16-inch diameter pipeline lateral for Shell, to be completed in late 2013 or early 2014, to connect the Lycoming County system to Shell's Wellsboro Loop gathering system in Tioga County.
The new Shell laterals, said PVR, would offer operational flexibility to move gas south to Transco, as well as the capability to move gas between the 24-inch lateral and Shell's proprietary pipeline systems. The agreement is a take-or-pay firm capacity commitment in months seven-139, with an option during the first two years to increase the firm capacity commitment. Additional interruptible capacity also is provided as it is available, along with dehydration services.
For Range, PVR agreed to provide midstream services that are similar to arrangements it already provides in existing contracts. However, the latest agreement expands an area of mutual interest to include Range's leasehold in eastern Clinton County, PA, that the producer plans to develop. Additionally, lateral lines and compression facilities are to be built under a multi-year build-out schedule, staged to follow Range's drilling program.
The Inflection agreement dedicates to PVR defined acreage in Lycoming County, which is east of the midstream unit's existing system. The agreement gives Inflection firm volume capacity and compression services, as well as a connection to Transco. The new gathering system would be built in five phases to match Inflection's drilling and production schedule, and it would be tied to well completion and production milestones.
Assuming all of Inflection's milestones are met, PVR plans to build a total of 10 miles of 16-inch diameter trunkline and 15 miles of lateral gathering lines, together with associated compressor stations, for total system capacity of 380 MMcf/d when completed in 2013.
PVR's total capital investment between now and 2018 for the planned projects is estimated at about $380 million. The cost to develop and construct 54 miles of pipeline and associated facilities for the Lycoming County trunkline extension and the associated Shell lateral lines is projected to be around $160 million over the next three years, with $110 million to be spent this year.
A total of around $140 million is expected to be spent over five years for the Range system, with expenditures beginning in 2014. Assuming all of the milestones under the Inflection agreement are met, PVR expects to spend about $80 million for the east Lycoming County system, with about $44 million to be spent this year.
With 1,780,000 net acres, Chesapeake Energy is the largest acreage holder in the Marcellus Shale. Rounding out the top five are Range with 900,000 net acres, Shell (East Resources) with 850,000 net acres, Seneca Resources (745,000) and Chevron (714,000).