Midcontinent Express Pipeline's (MEP) access to high-growth gas shale basins, such as the Barnett, Bossier, Woodford and Haynesville, plus long-term, fixed-fee capacity reservation contracts give the 505-mile pipeline a "stable outlook," according to Fitch Ratings.
While the long-term outlook for production from shale basins is strong, low gas prices expose some pipeline operators to greater risk as producers curtail rig activity, Fitch noted. However, this risk is largely mitigated for MEP as the pipeline and its expansion projects are fully subscribed with an average contract life of nine years, Fitch said, adding that capacity reservation contracts remove volumetric risk.
Fitch also said it believes that key producers will continue to drill in the shale formations due to their attractive low costs and high production rates, as well as the need to hold leases.
MEP is a joint venture of Kinder Morgan Energy Partners LP, Regency Energy Partners LP and Energy Transfer Partners LP. The pipeline runs from Bennington, OK, to the Transco Station 85 hub near Butler, AL, and provides takeaway capacity from multiple Midcontinent and Texas production basins (see Daily GPI, May 11). It began operation in August 2009 (see Daily GPI, Aug. 4, 2009).
"MEP's competitive position is strong given its high number of receipt points, which provide supply diversity, as well as its ability to deliver gas to various geographic markets through extensive interconnections with 10 large long-haul pipes to the Northeast, Southeast, Mid-Atlantic and Midwest U.S.," Fitch said.
"Additionally, as drilling in shale formations generates high returns for producers and many land lease agreements require the producers to continue drilling to hold the lease, it is unlikely that during a credit event the producers would cease gas shipments out of shale basins, thereby partially mitigating counterparty risk for MEP."
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