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Southwestern Anchors New Texas Gas Transmission Laterals

Fayetteville shale gas producer Southwestern Energy said Friday that subsidiary Southwestern Energy Services Co. has signed a 10-year precedent agreement to be a "foundation shipper" on two pipeline laterals and related facilities proposed by Boardwalk Pipeline subsidiary Texas Gas Transmission LLC.

The first lateral (the Fayetteville Lateral) will originate in Conway County, AR, and extend 167 miles to a connection with Texas Gas' mainline in Coahoma County, MS. It will be a minimum of 36 inches in diameter and will have about 1.1 Bcf/d of capacity. The second lateral (the Greenville Lateral) will originate at the Texas Gas mainline system near Greenville, MS, and extend 98 miles eastward to interconnections with various other interstate pipelines in the Kosciusko, MS, area. It is expected to have 750,000 Dth/d of transportation capacity. The cost of the two laterals is expected to total $590 million. Depending on regulatory approvals, the expected in-service date for both laterals is Jan. 1, 2009.

The firm transportation agreements will enable Southwestern to transport up to 500,000 MMBtu/d on the Fayetteville Lateral and up to 400,000 MMBtu/d on the Greenville Lateral. Southwestern also will have the option to acquire up to 300,000 MMBtu/d of additional capacity on the Fayetteville Lateral and 240,000 MMBtu/d of additional capacity on the Greenville Lateral.

"When built, these new pipelines will help ensure that we have adequate takeaway capacity to meet our projected production growth and provide us access to premium markets," said Southwestern CEO Harold M. Korell.

The Fayetteville Lateral will receive gas from multiple receipt points in the Fayetteville Shale play, which is on the Arkansas side of the Arkoma Basin. The gas will be delivered to new and existing markets served by Boardwalk's existing and planned pipelines, as well as to multiple interstate pipeline interconnects via the Greenville Lateral.

Southwestern currently produces about 100 MMcf/d of gas from the Fayetteville Shale play in north-central Arkansas, but expects production to grow rapidly in the coming years. The company holds 887,000 net acres in the play area.

"The Fayetteville Shale is a leading shale production play in the Midcontinent, and gas volumes from this region are expected to increase over the next few years as producers increase their drilling activities," said H. Dean Jones, co-president of Boardwalk. "As these volumes grow, we can incrementally increase the capacity of the Fayetteville Lateral up to the maximum of 1.1 Bcf/d by adding compression."

Jones also said the new lateral also gives the pipeline company "a platform for further organic growth in the Midcontinent from which we could extend the pipeline west into eastern Oklahoma to transport gas from existing production areas and the emerging Caney/Woodford shale play."

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