Given the difference in prices for natural gas liquids (NGL) and dry gas, NGL content in the Eagle Ford Shale "makes for a much more pleasant experience" for producers there, Kinder Morgan Energy Partners LP (KMP) Chief Rich Kinder told financial analysts last week. And burgeoning activity in the South Texas play has filled up a KMP midstream project there.
KMP and Copano Energy LLC in July announced a joint venture (JV) to serve South Texas producers (see NGI, July 12). SM Energy Co. is the anchor shipper on the project, committing 200 MMcf/d. Kinder said the remainder of the 375 MMcf/d of capacity has now been spoken for. "We will be announcing very shortly who took the rest of that capacity," he said.
With additional compression the project could be expanded to 600 MMcf/d. Kinder said there likely will be opportunities for KMP to gather lean gas in the area as well and connect it to its mainline system. The partnership's two Texas intrastates also have capacity to take gas out of South Texas.
"So we have the ability to fill up this additional capacity and get to the places where the wet gas can be processed and where the dry gas can get to the markets," Kinder said.
The South Texas midstream pie is a big one, and KMP will have a large slice, but not the only one, he said. "I think there's going to be enormous production. I'll be very open about it. These big producers down there, they're spending hundreds of millions of dollars, maybe even north of a billion dollars in some cases.
"There are clearly a couple of other good-size [midstream] players in there, but I think we will certainly get our share of it, and the advantage we bring is we have the ultimate takeaway capacity to get this up to Katy [TX], the [Houston] Ship Channel, or wherever people can take it."
Turning to the Haynesville Shale of North Louisiana, Kinder said a third-party producer recently took capacity with its gathering and treating JV with Petrohawk Energy Corp., KinderHawk Field Services LLC (see NGI, April 19). He said third-party volumes handled by the JV are a little more than what was expected and Petrohawk volumes are a little bit less.
He noted, though, that this means if Petrohawk flows are less than what was expected at the time KMP bought its half interest in the assets, the difference can be offset by third-party volumes. But based on projections, Petrohawk throughput is expected to be what was anticipated, in which case third-party volumes are just more upside, Kinder said.
"Notably, the inclusion of third-party volumes should reduce customer concentration risk and increase the likelihood that volume growth on the system will proceed according to budgeted acquisition economics," analysts at Wells Fargo Securities LLC said in a note.
KMP reported third quarter distributable cash flow before certain items of $317.9 million versus $320 million for the year-ago period. Net income before certain items was $339.6 million versus $351.1 million a year ago. Including certain items net income was $320.8 million compared to $359.5 million in 3Q2009. Certain items totaled a net loss of $20.7 million, the majority of which was attributable to hedge ineffectiveness in the partnership's carbon dioxide and natural gas intrastate businesses and an insurance deductible.
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