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Regency Energy Partners to Expand Louisiana Pipeline

Dallas-based Regency Energy Partners LP is planning a $1.1 billion expansion of its Regency Intrastate Gas System in North Louisiana to bring natural gas from the Haynesville Shale to market, the company said last Tuesday.

The expansion will provide 1.45 Bcf/d of new capacity to handle expected production increases from the region. Regency said it has obtained letters of intent for long-term transportation agreements from anchor shippers covering approximately 76% of the incremental capacity and is seeing strong demand for the remaining capacity.

The Haynesville Shale has been trumpeted recently as the new power play for domestic natural gas production. Research and analysis firm Wood Mackenzie this summer called Haynesville a "booming new resource play" that could become the fastest growing shale play to date in the Lower 48 (see NGI, July 21).

"By launching this project to expand our existing midstream infrastructure in the heart of the Haynesville Shale, Regency has a 'first-mover' advantage in meeting existing and future demand," said CEO Byron Kelley. "We expect significant drilling in North Louisiana for many years and our strategic footprint in the region, together with the incremental capacity from this project, will position us well to handle this growth."

The two-phase expansion project includes looping the existing pipeline, extending the system and adding new compression. Phase one, which is expected to cost approximately $375 million and be completed during the first half of 2009, will add 300 MMcf/d of capacity once fully operational. Phase two, which will add an incremental 1.15 Bcf/d, is expected to be on-line by the end of next year and be fully operational in the first quarter of 2010. Overall, the project will add 204 miles of pipeline, ranging in diameter from 24 to 42 inches, and 49,000 hp of compression.

Regency said it has obtained commitments from UBS Investment Bank, Morgan Stanley Senior Funding Inc. and RBS Greenwich Capital for approximately $600 million of debt financing needs, which will allow Regency to use its revolving credit facility to finance all of the project costs associated with phase one and a portion of phase two costs. Regency intends to finance the remaining costs of phase two by using available capacity under its revolving credit facility and through future equity offerings.

The $1.1 billion in capital needed for the project includes $121.5 million in commitments approved by Regency's board in July for longer lead-time items, such as pipe, compression and rights-of-way. Regency also plans to expand some of its existing interconnections with interstate pipelines and is exploring new intrastate and interstate market options for its shippers.

Last year GE Energy Financial Services paid $603 million for an interest in Regency, which owns 4,000 miles of natural gas gathering pipe systems in Texas, Louisiana, Oklahoma and Kansas, as well as the 320-mile intrastate gas pipeline in Louisiana (see NGI, June 25, 2007). The GE unit purchased the stake from HM Capital Partners LLC.

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