Ruby Pipeline, which ramped up late last month, is the third of five major pipeline projects El Paso Corp. will complete this year as it prepares to spin off its exploration and production (E&P) business, CEO Doug Foshee told financial analysts on Thursday.

El Paso’s management team offered insights about the company’s second quarter performance during a conference call. Ruby, which had its start-up last month (see NGI, Aug. 1), is carrying gas to West Coast markets from the Rockies. The start-up joined El Paso’s completions this year of Southern Natural Gas South System III Phase II and Southeast Supply Header Phase II.

For the pipeline business, “the completion of Ruby is a major milestone for us, obviously,” said Jim Yardley, who helms the unit. “And we’re well on our way now toward completing our big slide of growth projects scheduled for this year.”

In the first week of August “Ruby has been flowing between 400 and 480 [MMcf] a day,” he said. “As for our results on Ruby construction, it was completed four months later than we original planned back in 2008. And it will be 23% over budget at our projected completion cost of approximately $3.65 billion. The general reasons for this have been well-documented: significant permanent challenges; building through a wet winter; and dealing with various fishing game habitat or nesting issues.”

Yardley took a few minutes to provide “a little bit more flavor” about the scale and complexity of Ruby’s construction, which is the largest U.S. gas pipeline project since the Rockies Express Pipeline was completed in 2009.

“Before beginning construction, it took a whole two and a half years to move Ruby through the review process…and the various federal, state and local agencies. At peak construction, nearly 5,300 people were working on Ruby. Pipe was produced in India, Arkansas, the Gulf Coast and France. It was moved west in 110-unit trains, each up to one-mile long. Ruby was constructed at elevations up to 8,800 feet and at grave slopes up to 14%. Oregon rainfall was 50% greater than normal, February through April of this year. At one point, we had over 200 archaeologists in the field. We avoided impacts to over 100 safe grasslands, 1,600 migratory birds’ nests, and there was no taking of any threatened or endangered species.

“We crossed and restored over 1,100 wetlands and streams, all in accordance with government requirements. Along the way, eight lawsuits were filed to stop Ruby construction. So we’re over budget, no excuses. At the same time, our team dealt with several obstacles professionally and for the most part successfully to bring Ruby to completion. We also learned a lot to use on future projects. So to the Ruby team, I want to say a very big thank you.”

The “long-term macro for Ruby remains in place,” said Yardley. “The Rockies represents a huge resource base that needs to get to market, and the West Coast markets pre-Ruby are heavily dependent on Canadian gas. And Canadian exports to the U.S. are declining, down another 700 MMcf/d this year-to-date versus last. While Rockies production growth may be slower than would like to see, as we’ve said before, Ruby is a long-term strategic asset for El Paso, for Rockies producers and for supplied diversity on the West Coast.”

Still to come is completion of the Gulf LNG (liquefied natural gas) project, which is slated to begin service in October, as well as the anticipated completion of Tennessee Gas Pipeline’s TGP 300 Line, which should begin carrying more gas from the Marcellus Shale in November. The TPG Line 300 expansion is in “full swing” and on time for a November in-service date, said Yardley. The expansion will offer 127 miles of looping, “much through rock” and is fully subscribed for 15 years.

TGP, which runs through the heart of the Marcellus Shale, is “having a record year,” with throughput up 21% from a year ago, Yardley said. “A lot of this is due to increasing Marcellus production. Marcellus receipts into TGP are now 1.5 Bcf /d, up for about 0.6 Bcfe/d a year ago. And TGP has in hand over 1 Bcfe/d of fully subscribed expansions in Northeast Pennsylvania to be completed over the next two years. So we’ll continue to get our share of Marcellus’ growth, and TGP is well positioned to further expand.”

During July gas nominated into the 300 line in Pennsylvania’s Marcellus producing counties of Tioga, Bradford and Susquehanna was trading on average between 50 and 65 cents below the Henry Hub (see NGI, July 25).

El Paso’s Pipeline Group earned $428 million in the second quarter, down from $472 million from a year earlier. Total throughput rose 2% year/year, with the biggest gains from TGP, which reported a 21% gain in throughput. The El Paso Natural Gas (EPNG) system, which carries gas to California, reported an 8% decline in throughput because of storage withdrawals in the state, Yardley said. However, he said there are signs of a rebound in the West Coast economy.

“EPNG is our most challenged pipe due to pipeline overcapacity in the Southwest,” said Yardley. “Throughput this year had decreased mostly due to higher withdrawals from California storage fields this winter. This backed down interstate transport into California. But on the positive side, we see signs of the beginnings of an economic recovery in the Southwest, also as expected, increasing exports to Mexico.”

Completing the pipeline backlog by the end of this year “will result in significant free cash flow,” Foshee told analysts. But El Paso has no plans to slow down. “We see excellent opportunities for future growth” for its pipelines in the Marcellus and Utica shales, as well as the power generation markets and through Mexico exports. “Pipelines will drive El Paso’s yield story,” he said.

El Paso also remains on track to spin off the E&P business as a publicly traded company by the end of the year (see NGI, May 30). “Great progress” has been made and the “critical plan to spin off the company remains…on track,” said Foshee. The capital structure for the corporation and the new E&P company have been finalized; boards of directors also are completed. Foshee would remain chairman and CEO of El Paso Corp. and become nonexecutive chairman of “E&P Spinco,” the yet-unnamed exploration company.

El Paso’s net income in the second quarter rose almost 67% year/year to $262 million (34 cents/share) from $157 million (21 cents). Revenue climbed 21% to $1.23 billion. Adjusted earnings rose 14% from a year ago to 25 cents/share, beating Wall Street forecasts by a penny.

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