American Midstream Partners LP said it has started decommissioning its Midla pipeline system in Louisiana and Mississippi after customers broke off negotiations over repairs to the 88-year-old system and the company received no response to an open season at the end of last year.
During a conference call Tuesday to discuss American Midstream's 4Q2013 earnings, CFO Dan Campbell said the company was in the process of abandoning the pipeline and would probably file paperwork with FERC in the next few weeks.
"We're not comfortable in continuing to operate the pipeline in its current condition and it's probably 30 years past its useful life and needs to be taken out of service," Campbell said. "This is not an issue of cost or revenue. This is an interest of safety and being able to operate a pipeline safely and prudently.
"If it was just a matter of cost and the pipeline was a safe, sound pipeline, we could always go back to FERC [Federal Energy Regulatory Commission], file another rate case, get a true cost of service and regulated pipeline and improve the revenue side of it. But that's not the issue here. The issue is really about safety and the ability to operate a pipeline system safely, which we're not willing to continue to do."
Last November, American Midstream launched an open season through December to gauge customer interest for subscribing to firm capacity on one or more of three options to reconstruct the pipeline, which was built in 1926 and runs from Monroe to Baton Rouge, LA. The three options were:
A "replication" option to reconstruct the mainline pipe, largely along the existing right-of-way, at a size and pressure capable of replicating current services;
A "Natchez Line" option, which called for rebuilding the pipeline from Winnsboro, LA, to Natchez, MS, and retiring mainline facilities between Winnsboro and Monroe, and between Natchez and Zachary, LA; and
A "Natchez-Plus Line" option, which would include an upsized Natchez Line to bolster industrial development and economic growth.
"We got no response to that open season in December, no customer signed up," Campbell said. "So come April 1, we have notified the customers that we're going to begin the orderly shutdown of that pipeline system.
"You will see politicians, customers and things that are getting in the press about us on this deal. But just rest assured that we're doing the right things relative to operating in a safe environment. And that's what our No. 1 goal is."
Campbell said that after American Midstream acquired the pipeline, company officials found numerous leaks. "You cannot use modern techniques today to provide a protection to and detect leaks," he said. "You literally just have to walk the line and look and hear for leaks. And we had two welding crews for full-time just repairing, patching leaks on it.
"I said, 'This is not sustainable. We're going to redo this thing and take this pipeline out of service.' We worked for about nine months, since last May, to work with the customers to try to do a read, reconstruct it, take the system out of service and rebuild the portion of the Midla system to serve the customer base."
Campbell said Atmos Energy Corp., which served the City of Natchez, was once the largest customer using the Midla system. But after Atmos and other customers broke off negotiations, Campbell said the company decided to try an open season, "to test the customers' willingness to sign up for anything to allow us to finance a new pipeline."
According to American Midstream, the Midla system was built in areas that were, at the time, largely uninhabited. Campbell said the pipeline had connected the Monroe Field to Exxon's refinery in Baton Rouge.
"It's an old drafter coupling pipeline," Campbell said. "I thought most of that pipe was taken out of service in this industry. I worked for companies that have had it before and it was taken out in the '80s and '90s. I was kind of taken aback and surprised that it still existed in a pipeline like this."