Activity in the Permian Basin of West Texas continues to heat up. Last week a major natural gas liquids pipeline project was announced while, separately, more producing oil and gas assets there traded hands.

Lone Star NGL LLC — a venture of Energy Transfer Partners LP (ETP) and Regency Energy Partners LP — said it plans to construct a 530-mile y-grade natural gas liquids (NGL) pipeline from Winkler County in West Texas to the Jackson County processing plant in Jackson County, TX.

“The dramatic increase in drilling in the Permian Basin has highlighted the need for additional NGL takeaway capacity from West Texas, and Lone Star is strategically positioned to provide this essential service to producers,” said Greg Bowles, Lone Star senior vice president.

Lone Star has secured capacity on ETP’s recently announced y-grade NGL pipeline from Jackson County to Mont Belvieu, TX. The Lone Star project is expected to have a minimum capacity of 130,000 b/d with potential for expansion. More than 65% of planned capacity is subscribed with key producers and processors under 15-year agreements, the partners said. The project is expected to be completed by first quarter 2013 at a cost of about $700 million, of which Energy Transfer will pay 70% and Regency will pay 30%.

“What we have seen with the crude-gas [price] spread being what it has been over the last couple of years is we’ve seen very much increased emphasis on liquids-related drilling by producers,” Bowles told NGI. “The Permian Basin has had significant rig additions here recently.

“There’s a theme in the midstream right now which is getting infrastructure in place to handle this production. Not only in the Permian Basin but you’re seeing it also in the Eagle Ford and elsewhere. There are bottlenecks and it’s bottlenecks either from existing capacity that is getting full and/or there’s no infrastructure to support drilling whatsoever. In the Permian Basin it’s a little of both…”

Petrohawk Energy Corp. is among producers that have turned to the Permian for liquids-rich production. “The addition of the Permian Basin completes our vision of a well crafted asset base where we can leverage our operational expertise — with a balanced portfolio of oil and gas opportunities,” CEO Floyd C. Wilson said last month (see NGI, May 16).

Bowles said Lone Star is expanding its gathering system in the Permian, extending it farther west than ever before — how far west remains to be seen as more deals could be in the making. “We’re leveraging off of our current infrastructure, which is one of our advantages in this prospect is that we have a gathering system,” he said…[W]e may not have done the last deal to extend further west at this point.”

Lone Star owns and operates NGL storage, fractionation and transportation assets in Texas, Louisiana and Mississippi, including a 1,066-mile NGL pipeline and 43 million bbl of storage capacity at Mont Belvieu. The venture is planning to construct a 100,000 b/d NGL fractionation facility at Mont Belvieu (see NGI, May 9).

Energy Transfer Equity LP (ETE) Chairman Kelcy Warren recently said, “Lone Star is near capacity” in West Texas. “We can add a little bit relatively efficiently by adding pumps…Other takeaway capacity is full or near capacity now. I personally see a train wreck coming. We need more capacity soon or it’s going to be a problem. We’re committed to doing that…” (see NGI, June 20). ETE owns the general partner and 100% of the incentive distribution rights of ETP and Regency.

In other Permian news last week, Encore Energy Partners LP (ENP) and its general partner, Vanguard Natural Resources LLC, each are said they are acquiring a 50% stake in producing oil and gas assets from a private seller for a total price of $85 million.

The interests to be acquired by ENP and Vanguard each have estimated total net proved reserves of 2.74 million boe, of which about 70% is oil and natural gas liquids (NGL). The properties being acquired are 100% proved developed. At closing net production to ENP attributable to the assets being acquired should be approximately 500 boe/d, it said. The effective date of the acquisition is May 1, 2011 with closing expected by Aug. 1.

“This acquisition is an excellent MLP- [master limited partnership] type asset and is a great addition to our Permian Basin portfolio,” said ENP CEO Scott W. Smith. “These assets are expected to generate very stable cash flows and production for the next several years. Upon execution of the purchase and sale agreement for this transaction, we entered into hedges covering a substantial portion of the estimated production from this acquisition for the next several years.”

ENP’s assets consist mainly of producing and nonproducing oil and gas properties in the Big Horn Basin in Wyoming and Montana, the Williston Basin in North Dakota and Montana, the Permian Basin in West Texas and New Mexico, and the Arkoma Basin in Arkansas and Oklahoma.

Vanguard assets are mainly producing and nonproducing gas and oil reserves in the southern portion of the Appalachian Basin, the Permian Basin, South Texas and in Mississippi.

Late last year Vanguard acquired all of Denbury Resources Inc.’s interest in ENP for $380 million (see NGI, Nov. 22, 2010). Vanguard currently owns about 46% of the common units of ENP and has made an offer, valued at about $567 million, to acquire the remaining stake (see Daily GPI, March 28). The offer is currently pending, a spokesperson said last week.

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