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Tidelands Takes Initial Regulatory Steps on Massive Mexican Gas Infrastructure Project

San Antonio-based Tidelands Oil and Gas has taken the first significant regulatory steps on a massive $818 million natural gas pipeline, storage and LNG project in northeastern Mexico. The company is embarking on a project that could bring several significant firsts to Mexico, including its first gas storage field, its first offshore LNG terminal in the Gulf of Mexico and its first gas market hub with its own gas pricing.

The project will include construction of two major pipelines that will link its proposed LNG terminal and storage field to markets in the U.S. and Mexico. Tidelands' Mexican subsidiary Terranova Energia filed an application for the permitting of the 1 Bcf/d Terranova Oriente pipeline with the Comision Reguladora de Energia de Mexico (CRE).

The 160-mile bidirectional Terranova Oriente pipeline will be the backbone of the project, transporting gas from the proposed 50 Bcf storage field in Rio Bravo, Tamaulipas to markets in the U.S. and bringing gas south into Mexico from suppliers north of the border.

It also will include a connection to the offshore pipeline that will deliver gas from the proposed Dorado HiLoad offshore GOM regasification terminal. Tidelands' infrastructure project also will include another major 750 MMcf/d pipeline from Compressor Station 19 on Terranova Oriente to power generation and other markets in Monterrey.

"Over the next 30 days there's going to be 25 or 30 press releases out about [this multifaceted project]," said Tidelands CEO Michael Ward in an interview with NGI. "The banks have really come together pretty nicely. There are not too many uncertainties left. I would say we're about 90-95% certain that this is going to go forward at this point."

Ward said the border-crossing pipeline will include two international crossings at Progreso and Arguelles that tie into the U.S. markets. "We'll be filing our FERC permits in the coming week for our two international crossings." He expects gas to be delivered into "all of the major U.S. pipelines" in South Texas. On the Mexico side, the pipeline will tie into all the major pipelines there as well and will have a connection to the Terranova Occidente pipeline, which will bring gas to the northwest side of Monterrey.

"We continue to move closer to the realization of years of planning and developing projects that have been envisioned by our management team," said Ward in a statement.

The company's proposed Brazil gas storage field will be developed at a depleted oil and gas field in Mexico's Burgos Basin. Ward said the company is working with Mexico's secretary of energy to purchase the rights for the storage field, including the gas in place. It will be the first gas storage field in the entire country and has the right geology to become the largest gas storage field in North America, Ward said.

"Everybody is excited about the project," he said. "It will change the way gas is marketed and supplied to the northeastern part of Mexico. It will create Mexico's northeast hub. Matter of fact, they will have their own marketing scheme and their own posted price for gas."

The storage field will be developed in phases. The first phase will include 50 Bcf of working gas capacity, 350 MMcf/d of injection capability and 500 MMcf/d of deliverability. Ward said the field could be expanded to 750 Bcf of working gas capacity, making it about triple the size of the largest gas storage field in North America. However, he said that possibility would be "very remote."

Gas will be delivered to the storage field from the company's proposed Dorado HiLoad regasification terminal 35 miles offshore Tamaulipas. The $150 million terminal will utilize a regasification process designed by Remora Technologies. The design includes a floating regasification dock that attaches to an LNG tanker and vaporizes the LNG and injects it directly into a pipeline system. The terminal will have sendout capacity of 1.4 Bcf/d.

Ward said construction is scheduled to begin in June 2006 with the entire project, including pipelines, storage and LNG terminal, operational by January 2008. "It's a pretty aggressive timetable, I know. But our LNG facility is a lot different than a conventional facility. It's a floating dock. It's been tested on crude oil but not LNG.

"I've been working on all of this for three years," he said. "It didn't just pop up over night. We started out with just the pipeline infrastructure and storage deal but because of the emerging markets in the U.S. and the dismal results of the multi-service contracts [for gas development in the Burgos Basin], we added an LNG terminal into the thing."

He noted there was not a lot of bidding on exploration and development in the Burgos Basin and so far there haven't been very good exploration results. "There's going to have to be some changes in the [Mexican] constitution to make it a more palatable venture for foreign companies to get into it." He said it's not a geological issue with the basin itself, but more of a political issue. "They've got the reserves. It's just finding the right people to explore them and attracting the money. Right now it's not very palatable."

While doing business in Mexico has been a challenge for many companies, Ward said he does not see any insurmountable hurdles standing in the way of the Tidelands pipeline, storage and LNG project, which will bring northeastern Mexico much needed gas infrastructure that will spur economic development. However, there is no doubt that the company faces some significant regulatory, and possibly political, steps ahead in order to get all of the pieces in place.

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