CenterPoint Energy Field Services Inc. last week announced new contracts with a Shell subsidiary and Encana Corp. that will grow its rapidly expanding Haynesville Shale gathering and treating network to 1.5 Bcf/d capacity and possibly eventually to 2.8 Bcf/d.
Under the new long-term agreements CenterPoint will acquire existing facilities from the two producers and expand them to gather and treat up to 580 MMcf/d of natural gas in northwest Louisiana.
The system, to be located in portions of De Soto, Red River, Sabine and Natchitoches parishes, will be known as the Olympia Gathering System. If requested by Encana and/or Shell, CenterPoint will expand its facilities in order to gather and treat up to an additional 520 MMcf/d. The agreements also include volume commitments.
Gathering and treating services from the acquired facilities started immediately. CenterPoint estimates the cost for the Olympia Gathering System, including the purchase of existing facilities, will be between $400 million and $425 million. Depending on expansion elections by Shell and Encana, CenterPoint would invest as much as $175-200 million for additional facilities. New construction to reach 580 MMcf/day includes more than 180 miles of pipelines, nearly 8,000 hp of compression and more than 680 MMcf/d of treating capacity.
The Olympia system will connect with CenterPoint's Magnolia Gathering System, also in the Haynesville Shale, which is being built to support Encana and Shell natural gas production in De Soto and Red River parishes.
CenterPoint announced late last month it would be expanding the Magnolia system from gathering and treating 700 MMcf/d to 900 MMcf/d under the agreements with Shell and Encana executed in September 2009 (see NGI, May 3). The construction of the 700 MMcf/day base facility is running ahead of schedule with substantial volumes flowing and is expected to be fully in service by year-end. The 200 MMcf/d expansion is expected to be placed into service in the first quarter of 2011.
Upon completion of the currently committed expansions of the Magnolia and Olympia Gathering Systems, the combined systems will be capable of gathering nearly 1.5 Bcf/d. If all remaining expansions are elected, the two systems will be capable of gathering 2.8 Bcf/d.
"CenterPoint Energy Field Services is extremely pleased to have been selected to provide additional gathering services for two outstanding producers," said C. Gregory Harper, senior vice president and group president of CenterPoint Energy's Pipelines and Field Services group. "The combination of the Olympia and Magnolia projects under way with Encana and Shell makes CenterPoint Energy a leading gatherer in the Haynesville Shale, both in system capabilities and committed volumes."
Moody's Investors Service took a positive slant on the Haynesville development, noting that while regulated businesses currently comprise almost 90% of the parent CenterPoint Energy's operating income, that is expected to decline in the next few years while its unregulated business surges ahead, led by the Haynesville development. The Haynesville project "brings a new source of stable fee-based income with a lower risk profile than under a conventional gathering and processing contract," Moody's said.
The long-term agreement charges fixed gathering fees, guarantees minimum volumes, and is structured with some return-protecting mechanisms. "The project does not entail gas processing, which would present commodity price risk. Encana and Shell are highly creditworthy counterparties that have made sizable investments in the Haynesville Shale that substantiate their strong strategic interests there," Moody's said.
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