With phase one of its storage project still not completed, Pine Prairie Energy Center LLC has returned to FERC asking to double the working gas capacity of its storage project near the Henry Hub in Louisiana to 48 Bcf. At the same time Standard & Poor's Ratings Service (S&P) has lowered the company's credit rating because of delays and cost overruns on the initial project.
Pine Prairie proposes to develop two additional storage caverns with capacity of 12.8 Bcf, bringing the total number of caverns to five; and increase the working gas capacity of two of the three previously Federal Energy Regulatory Commission (FERC)-authorized storage caverns to 10 Bcf from 8 Bcf, yielding aggregate working gas capacity of 48 Bcf among the five storage caverns, according to the company. It also plans to build a 5.3-mile, 24-inch diameter pipeline loop, and install six incremental compression units totaling 34,800 hp [CP04-379].
Pine Prairie, which is owned by Houston-based PAA/Vulcan Gas Storage LLC, has asked FERC to approve the expansion on or before Aug. 1. PAA/Vulcan Gas Storage is a partnership of Plains All American Pipeline LP and Vulcan Capital. When the proposed expansion is complete, the storage facility would have a withdrawal and delivery capability of up to 3.2 Bcf/d and receiving and injection capability of up to 2.4 Bcf/d.
In proposing the expansion, Pine Prairie said it "has encountered robust market demand for the gas storage services [that] it offers and received an overwhelming response to an open season held in July 2007."
Of the three storage caverns approved by FERC in November 2004, Pine Prairie reports that it placed in service Cavern No. 1 in October 2008 (see NGI, Nov. 22, 2004). Cavern No. 2 is scheduled to go into operation in April, while Cavern No. 3 has an in-service date of April 2010. Its dual 24-inch diameter header system with direct interconnects with several pipelines was placed in service in November 2007, according to the company.
The storage facility has planned tie-ins with ANR Pipeline, Texas Gas Transmission, Florida Gas Transmission, Tennessee Gas Pipeline, Texas Eastern Transmission, Transcontinental Gas Pipe Line and Columbia Gulf Transmission.
Pine Prairie "is being developed to be the largest natural gas salt cavern storage facility in North America," the company said.
In early 2007 PAA/Vulcan Gas Storage purchased an additional 240 acres of land adjacent to the Pine Prairie project in order to provide space for future expansions. The company said that along with existing acreage the additional land could provide space for another 11 salt caverns, bringing ultimate working gas capacity to 112 Bcf (see NGI, Jan. 29, 2007).
Just days after Pine Prairie sought approval of the expansion at FERC, S&P lowered its issue-level ratings on the company's $365 million of credit facilities to "B-" from "B." The action "reflects the project's continued cost overruns and construction delays, which have reduced near-term cash flows and raised operating risk. Since our last review, the uncontracted costs associated with the remaining construction budget have grown significantly," the ratings agency said earlier this month.
"These developments have also increased refinancing risk at the revolver's maturity in 2011. The project's sponsors have had to make up the cash shortfall by contributing an extra $35.5 million in sponsor equity since the last forecast and are planning to pledge an additional $35 million infusion of contingent equity as part of an anticipated credit agreement amendment, a significant portion of which the project expects to use by the end of 2010. Furthermore, these developments have necessitated the project's request to amend its financial covenants to avoid a technical default. At the same time, the project is requesting lender approval to extend the revolver's maturity at a later date," S&P said.
"Although leverage at maturity of the term loan in 2013 has not changed significantly under the sponsor's base case, the project relies on further equity infusions, lower interest rate and sales, general and administrative cost assumptions, and an improved construction process to offset the weaker financials and prevent a further increase in refinancing risk. Without these mitigating factors, we expect the project's debt per Bcf of natural gas at maturity to exceed $10 million, well in excess of its peers."
S&P said it might revise its outlook to negative if Pine Prairie is unable to secure an amendment to its financial covenants under the "currently anticipated terms."
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