Crosstex Energy L.P. To Construct $80M Texas Pipeline
Looking to get more natural gas to market, Dallas, TX-based Crosstex Energy L.P. announced that it has entered into agreements with producers in the Fort Worth Basin that would support a major pipeline project to bring Barnett Shale gas out of the basin. The proposed pipeline would feed into major pipelines that serve markets in Texas and the Midwestern and Eastern United States.
Following talks with a number of producers, Crosstex said it has lined up enough commitments to justify the construction of a 200 MMcf/d pipeline. The company said it will build a 110-mile, 24-inch pipeline from a point north of Fort Worth, TX (Justin area) to interconnect with Natural Gas Pipeline Co. of America and Houston Pipe Line in Lamar County, TX.
Crosstex estimates the capital cost of the project at $80 million and said that the pipe is expected to be completed by January 2006. After running some numbers, the company noted that at an 80% utilization, cash flow to the partnership from the project is estimated to be approximately $15 million in the first year of operation. As a next step on the project, Crosstex has contracted an engineering firm to complete a project feasibility study by Jan. 15.
Crosstex Energy Inc. owns the general partner, a 54.3% limited partner interest and the incentive distribution rights of Crosstex Energy LP.
"This project gives us a significant presence in an area that shows high demand for our services," said Barry E. Davis, Crosstex CEO. "We already have sufficient commitments to construct a pipeline with initial capacity of 200 MMcf/d of natural gas throughput, and expect more commitments to follow.
"As we mentioned in our earnings call last month, key to our growth strategy is a balanced focus between organic growth and acquisitions," he added. "We believe organic projects such as this can be more accretive to earnings per dollar of investment than an acquisition in today's environment."
The final size of the project and current throughput estimations are still sketchy as the company continues to solicit producers. Crosstex noted that it is still in discussions with companies that represent additional production that is available to be committed to the project prior to the middle of January. At that time, the company said it will make a decision regarding expanding the capacity of the pipeline to handle any additional commitments.
The partnership said it can fund initial construction expenditures for the project from its revolving bank facility. As the project progresses, these borrowings will be refinanced with a combination of equity and fixed-rate term debt. As a mid-stream natural gas company, the limited partnership operates over 4,500 miles of pipeline, five processing plants, and over 60 natural gas amine treating plants.
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