SM Energy Co. has struck a long-term agreement with Eagle Ford Gathering LLC -- a joint venture (JV) of Kinder Morgan Energy Partners LP and Copano Energy LLC -- to gather, transport and process production from its Eagle Ford Shale assets in South Texas.

Denver-based SM Energy (formerly named St. Mary Land & Exploration Co.) would commit Eagle Ford production up to 200,000 MMBtu/d over a 10-year term. Eagle Ford Gathering would provide gathering, transportation and processing services and would construct approximately 85 miles of 24- and 30-inch diameter pipeline from SM Energy's acreage in the western Eagle Ford Shale play to Kinder Morgan's Freer compressor station in Duval County, TX. The pipeline is expected to begin service during the summer of 2011.

Gas would be gathered through the new Eagle Ford Gathering pipeline and transported on Kinder Morgan's Laredo-to-Katy pipeline to Copano's Houston Central plant where it would be processed. The agreement is fee-based and will not require SM Energy to invest any upfront capital. Kinder Morgan and Copano would invest approximately $137 million in phase one of the project and have each committed 375,000 MMBtu/d of capacity to Eagle Ford Gathering.

"The take-away volumes covered by this agreement, combined with our existing downstream infrastructure arrangements, match our planned production volume ramp-up over the next several years," said SM Energy CEO Tony Best. "This arrangement is also consistent with our strategy of having multiple outlets and markets for our gas while providing strong reliable markets for our NGLs [natural gas liquids]."

Kinder Morgan and Copano established Eagle Ford Gathering to serve gas producers in South Texas (see Daily GPI, May 17). Copano serves as operator and managing member of Eagle Ford Gathering.

"The Eagle Ford Gathering joint venture with Copano is one of several initiatives that we have undertaken at Kinder Morgan to access the major natural gas shale plays in the United States," said Tom Martin, president of Kinder Morgan's gas pipeline unit. "Providing transportation and midstream services to producers like SM Energy in the Eagle Ford Shale will result in expansion of our Texas intrastate pipeline system and incremental cash flow for our unitholders."

The Eagle Ford Shale has captured the interest of producers due to its liquids-rich gas (see Daily GPI, June 25; June 23), and the producer activity has drawn infrastructure developers to the play. Last week Enterprise Products Partners LP announced a slate of projects to serve Eagle Ford producers (see Daily GPI, June 30).

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