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Tenaska Plans 140-Mile Haynesville Gathering System

"The Haynesville formation has the capacity to be one of the most productive of the deep shale formations in the U.S.," and Tenaska Capital Management LLC (TCM), an affiliate of Tenaska Energy Inc., plans to build a gas gathering system with multi-market capability to serve the East Texas play, the company said last Thursday.

TCM, manager of the $2.4 billion TPF II LP, a private equity fund, says the 140-mile gathering system will have an initial capacity of 500 MMcf/d without any compression and will have an ultimate capacity of 800 MMcf/d achievable with the addition of about 25,000 hp of compression.

The system will traverse Nacogdoches, San Augustine, Shelby and Panola counties in Texas. A TCM affiliate is in the process of acquiring right-of-way, TCM said.

"Development of this gathering system is a reflection of the confidence TCM has placed in the potential for the Haynesville Shale formation," said TCM CEO Paul Smith, who sees the field as profitable for producers even in the current gas price environment. "We believe the Haynesville formation will keep this pipeline operating at capacity for years to come."

Smith told NGI that TCM has analyzed the cost to produce from various basins and believes the Haynesville is economic even with currently weak gas prices. What's more, producers seem to think so, too, he said. "In our discussions with producers, we see both by their plans and by their actions that they believe the Haynesville is economic in the current environment, and they're committing substantial capital to drilling today."

Producers are drilling more in the Haynesville, not less, and that's not something that can be said for some other basins today, he noted. Additionally, more than just drilling economics affect the attractiveness of a play, he said. "Things like market access are critical as well."

Smith said it looks as if the initial 500 MMcf/d of capacity will be oversubscribed, based on producer interest. Ten potential pipeline interconnects are being contemplated for the system, but Smith wouldn't say which ones as ultimate interconnects will be dictated, in part, by producer requests. "They have downstream transportation on some of those pipelines," he noted. Also confidential is the estimated cost of the project.

Mike Latchem, who is responsible for development of the project, said the gathering system will begin deliveries in early 2010 to multiple existing major intrastate and interstate pipelines in Nacogdoches County. The remainder of the pipeline, connecting to multiple interstate and intrastate pipeline systems near Carthage, TX, will be completed in the second quarter of 2010.

In August TCM said it was establishing a joint venture -- Frontier Gas Services LLC -- with Energy Spectrum Partners V LP , a midstream-focused private equity fund. Frontier will focus on the acquisition, development, ownership and operation of midstream gas infrastructure assets primarily in the Midcontinent, Permian Basin, East Texas and unconventional shale plays throughout the U.S., TCM said (see NGI, Aug. 31).

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