Tallgrass Energy LP has pushed back the completion of the roughly $213 million Cheyenne Connector and the $133 million Cheyenne Hub Enhancement to the second quarter of 2020, but the delay could be its last with Federal Energy Regulatory Commission certificates in hand as of September.
“The closer we get to being done with that project, the more contracts, and ultimately re-contracting, will be done once that's placed in service,” said COO Bill Moler during a conference call Wednesday to discuss third quarter results.
Tallgrass has contracted an additional 200 MMcf/d for the Cheyenne Hub in the third quarter, bringing the total commitments up to 800 MMcf/d, Moler said.
The Cheyenne projects would increase capacity at existing facilities for Rockies Express Pipeline (REX) by around 1,000,000 Dth/d by adding 32,100 hp of compression via six booster units, each have 10-year commitments totaling 600,000 Dth/d from affiliates of Occidental Petroleum Corp. and DCP Midstream LP.
“We are working hard to get the connector and hub done to flood Cheyenne,” Moler said.
The Cheyenne projects are pivotal in ramping up REX utilization and contracting.
“When the connector and hub go into service, that 800 MMcf/d is going to show up right at the doorstep of REX. And that, we believe, on a long-term basis will fill the gap, something that works for us financially as well as our shippers,” said CEO David Dehaemers.
REX’s firm contracted volumes in the third quarter averaged 4.15 Bcf/d, down by 1.3% from the previous quarter but up by 1.3% from the year-earlier period.
REX revenues in the third quarter totaled $233 million, up less than 1% from the prior quarter and a 3% increase from 3Q2018.
The risk of exposure to embattled shippers in Appalachia, home to the Marcellus and Utica shales, has yet to significantly impact REX east-to-west shipments, management said on the call.
“All of our FT [firm transportation] customers were sold out on the east end,” Dehaemers said. “I'm not saying they're making a lot of money, and they may be actually, if they continue to drill, losing money on a year-over-year basis. But they're able to pay the tariff and pay for the drilling costs. It's not a great situation, but we just continue to monitor it, and keep talking to them.
“Our pipes are full, the gas is being used somewhere, but the fact of the matter is the reason the prices are down is because there's too much supply. And if there was some supply constriction, there would be healthier pricing that might not be so bad for everybody.”
On the crude shipping side, Tallgrass contracted in the third quarter an additional 165,000 b/d on its 830-mile, 400,000 b/d Pony Express pipeline that runs from Guernsey, WY, to Cushing, OK. The company is currently in “advanced discussions” that could result in the contracting of an additional 70,000 b/d.
Average throughput on Pony Express in the third quarter was 365,342 b/d, up from 347,565 b/d in the previous quarter and up from 340,283 b/d in the comparable year-earlier period.
Tallgrass reported third quarter net income of $72.5 million (40 cents/share) for the quarter, up from $59.6 million (38 cents/share) a year ago.