DTE Energy CEO during a third quarter conference call Monday touted the company’s recent midstream acquisition in the Haynesville Shale, claiming its “extremely strong” resources hold “at least 10 years of drilling available at sub $2/MMBtu prices.”
DTE CEO Jerry Norcia discussed how the recent acquisition would fit into the Detroit-based operations. Assets include existing gathering infrastructure and 150 miles of pipeline under construction that would feed gas produced in the Haynesville to Gulf Coast markets for potential liquefied natural gas export.
“The Gulf Coast markets, including the industrial power and the emerging LNG markets, and the proximity to those markets provides a very large basis advantage that other resource basins don’t enjoy,” said Norcia.
Through the acquisition process, DTE reviewed 1,700 drilling locations with two reserve consultants, resulting in their conclusion that the shale play was a solid bet for its midstream aspirations, Norcia said.
The Energy Information Administration said in its latest Drilling Productivity Report that it expects Haynesville gas production to increase to 11.82 Bcf/d in November, up from 11.71 Bcf/d in October.
The midstream acquisition marks DTE’s first foray into the Haynesville, adding to its repertoire of assets in other gassy Lower 48 basins, including the Barnett Shale in North Texas; it also has a foothold in the Appalachian Basin.
In another first for the company, DTE opened a renewable natural gas (RNG) processing and interstate injection site in Wisconsin in September.
“The site processes raw biogas from nearby partner farms into renewable natural gas, pipeline quality,” which is “then injected directly into an interstate pipeline,” said Norcia. “Converting raw biogas RNG is a win-win, both for dairy farms and the environment.”
DTE’s Wisconsin site joins a nationwide trend in the expansion of RNG production and use. The RNG site in Wisconsin falls under DTE’s power and industrial projects segment, which earned $49 million in the third quarter, down from $58 million in the year-earlier period.
Volatile pricing for renewable identification numbers (RIN) is a small portion of DTE’s guidance for the success of its RNG projects.
“The bulk of our returns from RNG asset investments are in the dairy sector and most of the value from that comes from the low carbon fuel standard that exists in California,” said Norcia. “We have seen a decline in the written pricing, but we have seen it also start to recover recently.
DTE expects the U.S. Environmental Protection Agency to “issue a volume obligation that’ll be more in line with the supply that’s available. And I believe that’s why we’re starting to see some recovery in the pricing for the RINS,” Norcia said. “But it forms a small portion of our forecast for these assets and these investments…they still remain very attractive assets.”
RINs have been described as critical to the success of the RNG market by proponents of the natural gas vehicle sector.
DTE reported a total net income of $319 million ($1.74/share) for the third quarter, marking a 4% decline from year-earlier income of $334 million ($1.84/share), largely because of milder weather during the quarter.
“The third quarter of 2018 was one of the hottest quarters on record in our region,” said DTE CFO Peter Oleksiak on the conference call. The drop in earnings was also partly attributable to higher operation and maintenance expenses, he added.
The Haynesville deal, which should close by the end of the year, is expected to translate to a 34% increase in earnings for DTE’s gas storage and pipeline (GSP) business from 2019 to 2020.
DTE’s 2019 guidance for the GSP segment is $213 million, but the company raised its 2020 GSP segment guidance to $285 million to factor the midstream acquisition.
The 2020 guidance boost for the GSP segment incorporates gas price expectations and production forecasts among its producer partners, DTE management said on the call.
DTE’s expectations for double-digit growth in its GSP segment contributes to guidance that 2020 full-year earnings for the entire company will top 2019 earnings by 7.5%.
The company also boosted its full-year 2019 operating earnings guidance by 1% to a midpoint of $1.15 billion.
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