Linn Energy LLC has agreed to pay $1.2 billion to acquire BP plc‘s Hugoton Basin properties in Kansas, the largest conventional gas field in the United States. The agreement, set to close by the end of March, includes the 450 MMcf/d Jayhawk Natural Gas Processing Plant and 2,400 producing gas wells on 600,000 net acres. The properties have a decline rate of about 7% and are expected to provide 110 MMcfe of liquids production, Linn CEO Mark E. Ellis said. The wells are 98% operated, with an estimated 800 future drilling locations. The leasehold is 63% weighted to gas, and reserves life is estimated at 18 years. Proved reserves are estimated at 730 Bcfe, with 81% proved developed. Linn entered into hedging contracts for 100% of the natural gas production associated with the transaction through 2016 using a combination of 50% swaps and 50% puts. In addition, 68% of the natural gas liquids output is hedged through 2016.
Blackstone Energy Partners LP, Blackstone Capital Partners VI LP and affiliates agreed to buy $2 billion in newly issued CQP Senior Subordinated Paid-in-Kind Units (CQP PIK Units) for a stake in Cheniere Energy Partners LP‘s (CQP) project to add liquefaction and export capability to its Sabine Pass LNG terminal on the U.S. Gulf Coast. The partnership would use the proceeds to fund the equity portion of the costs of developing, constructing and placing into service the liquefaction project, as well as the purchase of the Creole Trail pipeline from Cheniere Energy Inc. and other partnership business. Blackstone would purchase 111 million CQP PIK Units for $18/unit, which would have a quarterly PIK rate of 4.2% and convert into CQP common units after two liquefaction trains begin commercial operation, which is expected to occur in 2016. The board of directors of CQP’s general partner is to consist of 11 members, including four directors appointed by Blackstone, four directors appointed by Cheniere Energy Inc. and three independent directors, Cheniere said.
A joint venture formed by Crestwood Midstream Partners LP and Crestwood Holdings Partners LLC has acquired a Marcellus Shale gathering system in northern West Virginia owned by Antero Resources Appalachian Corp. for $415 million, which includes $375 million in cash plus an earn-out clause allowing Antero to earn an additional $40 million based on production levels in 2012 and 2013. The assets include 33 miles of low pressure gathering lines currently moving around 210 MMcf/d from 59 horizontal Marcellus wells to regional pipelines including Columbia, Dominion and Equitrans. Antero also expects to make deliveries into MarkWest Energy Partners‘ Sherwood gas processing plant scheduled to come online in the third quarter. Crestwood and Antero also agreed to sign a 20-year gas gathering and compression agreement for production within an area of dedication covering 127,000 gross (104,000 net) acres in the rich-gas window of the southwestern core of the Marcellus. The deal would be effective as of Jan. 1, 2012. Crestwood earned $45 million in 2011 ($1/diluted share), up from $34.9 million in 2010 ($1.03/diluted share) because of a 66% increase in gathering volumes and a 13% increase in processing volumes to 570 MMcf/d and 144 MMcf/d, respectively. The company earned $12.3 million in the fourth quarter of 2011 (24 cents/diluted share), up from $6.3 million (18 cents/diluted share) in the fourth quarter of 2010, because of similar throughput increases.
A Boardwalk Pipeline Partners LP (BPP) subsidiary has paid $285 million to Boardwalk Pipelines Holding Corp. (BPHC) for the remaining 80% equity interest in Boardwalk HP Storage Co., the Houston-based partnership said. BPHC, a subsidiary of Loews Corp. and the parent of BPP’s general partner, acquired the interest for the same price at the end of 2011 (see NGI, Oct. 24, 2011). Boardwalk HP Storage operates seven high deliverability salt dome natural gas storage caverns with 29 Bcf of total capacity, of which 19 Bcf is working gas capacity in Forrest County, MS. The company also owns undeveloped land suitable for up to six additional storage caverns, one of which is expected to be placed in service in 2013 at an incremental cost of approximately $35 million. With the closing of the deal, BPP owns storage fields with total working gas capacity of about 186 Bcf and 14,300 miles of pipeline.
The midstream services unit of NiSource Gas Transmission and Storage (NGT&S) plans to develop a wet and dry gas gathering system to serve the Utica Shale in eastern Ohio. The project would include construction of a 90-mile large-diameter gathering system utilizing Columbia Gas Transmission’s existing right of way along its north-south-running V-100 and V-138 systems, extending through Columbiana, Carroll, Jefferson, Harrison, Belmont and Monroe counties. The project is expected to provide an initial transportation and processing capacity of 200 MMcf/d with expansion capabilities. In conjunction with the gathering project, NGT&S has purchased a 200 MMcf/d cryogenic gas liquids processing plant to be delivered in July, the company said. The plant and related facilities would be located at a midpoint on the wet section of the gathering system in Harrison County to process liquids-rich gas flowing from both the north and south.
Rules enacted by the Mississippi Development Authority (MDA) governing offshore seismic survey permitting and natural gas leasing have been posted and are expected to go into effect in mid-March, bringing the return of offshore gas drilling in Mississippi one step closer to reality. An MDA spokesman told NGI that its rules were first posted to the secretary of state’s website on Feb. 15 and should take effect within 30 days, thereby opening approximately 186,000 acres — about 38% of Mississippi’s offshore waters — to seismic and leasing activities. It’s believed that 350-380 Bcf of natural gas resources are located in the areas opened for drilling.
The Pennsylvania Department of Environmental Protection (DEP) issued 409 permits for Marcellus drilling and operators reported drilling 144 wells into the play in January this year, according to recent DEP data. Those figures show increased permitting and decreased drilling over last year’s peak. The DEP issued 317 permits in January 2011 and operators reported drilling 167 wells into the play. In January 2010, the DEP issued 146 and operators drilled 87 wells. In January 2009, the DEP issued 79 permits and operators drilled 29 wells. Bradford County in dry northeastern Pennsylvania led development this January with 21 wells and 74 permits, followed by neighboring Lycoming County (19 wells and 77 permits) Tioga County (15 wells and 46 permits), Susquehanna County (18 wells and 44 permits) and Wyoming County (three wells and eight permits). In wet southwestern Pennsylvania, Washington County led development with 21 wells and 32 permits, followed by Westmoreland County (10 wells and 22 permits), Greene County (nine wells and 10 permits), Fayette County (seven wells and four permits) and Butler County (seven wells and 15 permits). Through the end of February, Chesapeake Energy Corp. drilled 32 wells, Anadarko Petroleum Corp. drilled 26 wells, Range Resources Corp. drilled 24 wells, Chevron Corp. drilled 19 wells, Pennsylvania General Energy Co. LLC drilled 17 wells and EQT Corp. drilled 13 wells.
The governing boards of Mexico’s Petroleos Mexicanos (Pemex) and Spain’s Repsol YPF have signed a 10-year strategic alliance and plan to cooperate in several areas, including exploration and production and liquefied natural gas. Under the alliance, a team of managers from both companies would be appointed to help manage the partnership and look for ways to collaborate on business opportunities, training programs and an exchange of professionals.
The nonprofit State Review of Oil and Natural Gas Environmental Regulations Inc. (Stronger) said the North Carolina Department of Environment and Natural Resources (DENR) has experienced staff but is not adequately prepared to regulate oil and natural gas activities. In an 80-page report, Stronger said it found few DENR standards in place that would be applicable to an oil and gas regulatory program. Should the state decide to develop such a program, Stronger recommended that it include several criteria, including exploration and production waste management, storm water management, abandoned sites and hydraulic fracturing. The DENR is required to conduct a review of oil and gas regulation and make recommendations to the state General Assembly by May 1.
PDC Mountaineer (PDCM), a joint venture (JV) of Petroleum Development Corp. (PDC) and Lime Rock Partners V LP, will temporarily suspend drilling in the Marcellus Shale “due to the current depressed natural gas price environment,” according to Denver-based PDC. The JV is drilling its third horizontal Marcellus well in West Virginia and plans to drill another well prior to suspending drilling operations. It also plans to proceed with the completion of seven wells over the next several months, including three wells that were drilled last year, PDC said. Despite the temporary suspension of drilling, PDC remains “very pleased” with results of 5-7 Bcf/well in its West Virginia Marcellus program, according to CEO James Trimble. The independent plans to reallocate the $12 million PDCM equity contribution portion of its capital budget to liquid-rich projects in the Wattenberg Field. PDC’s previously announced $284 million 2012 capital budget remains unchanged, and PDC reconfirmed its 2012 production guidance of 53 Bcfe.
A local ordinance that bans oil and gas operations in the Town of Middlefield, NY, has been upheld by the Otsego County Supreme Court. Tompkins County Supreme Court Judge Phillip Rumsey found that Middlefield’s zoning law was not “void as being preempted by New York State Environmental Conservation Law,” as had been argued by Cooperstown Holstein Corp. (CHC) and its owner, Jennifer Huntington. The state law does not preempt a municipality “from enacting land use regulation within the confines of its geographical jurisdiction and, as such, local municipalities are permitted to permit or prohibit oil, gas and solution mining or drilling in conformity with such constitutional and statutory authority,” Rumsey wrote in his decision. Attorneys represented CHC had argued that state law prevents towns and local municipalities from regulating oil and gas.
A bill that would extend tax credits and other incentives toward new liquefied natural gas (LNG) storage facilities is advancing in the Alaska State Legislature. Under HB 289 — also known as the Natural Gas Storage Tax Credit — new or expanded above-ground LNG storage facilities with a capacity of at least 25,000 gallons would qualify for a tax credit of $15 million or 50% of construction costs, whichever is less. Facilities built on state-owned land would also qualify for 10 calendar years of rental payment exemptions, provided the operations are continuous.HB 289 has passed the House Resources Committee and now advances to the House Finance Committee. The Golden Valley Electric Association and Flint Hills Resources Alaska plan to build an LNG facility on the North Slope and have it operational by 1Q2014 (see NGI, Aug. 15, 2011). LNG would then be trucked to Alaska’s Interior until a pipeline solution is developed.
Proceeds from a natural gas and oil lease sale in New Mexico in February totaled almost $12 million and covered more than 7,000 acres, the New Mexico State Land Office reported last Tuesday. Twenty-eight tracts were offered for sale and 27 were sold, the state office said. Breaking down to slightly more than $1,628/acre, the February leases brought in $11.76 million for the 27 tracts, which covered more than 7,226 acres. The latest results compare with considerably more modest results in February 2011, when $3 million was received for 9,981 acres leased. For 2011, state land auctions brought in $93.2 million and covered 101,720 acres, averaging to $917/acre for the monthly sales overall.
More gas pipeline and storage infrastructure ultimately is needed in the Pacific Northwest, according to NW Natural Corp. CEO Gregg Kantor. NW Natural’s landscape includes a “unique mix” of challenges and opportunities, and Kantor sees its growing gas storage business and prospects for new gas pipeline infrastructure as part of the plus-side of the ledger. “Given the projected demand for gas to serve electric generation in the West, we believe in our strategy and the value of storage over the long term. In 2012 our focus on the storage business will remain consistent. We will execute on our operating plans and identify new commercial opportunities that take advantage of the growing reliance on natural gas.” Continued pressure for developing more gas-fired generation in anticipation of two major coal-fired plants in the region being eventually closed underscores the need for the proposed Palomar Pipeline project, he said. There are plans for an open season this year to assess the level of market interest in the revised pipe project.
The Marcellus Shale boom does not appear to be driving up crime rates in Pennsylvania, but more research is needed to gauge the actual impact, according to a Pennsylvania State University report. Comparing the arrest rates and the number of calls to the Pennsylvania State Police in the most active Marcellus counties, the report from the Justice Center for Research at Penn State found “no consistent increases” between the years 2006-2007 — before significant shale development began — and 2008-2010 — the first years of the boom. But while those rates stayed roughly the same in Marcellus country over those five years, they dropped in rural counties without drilling, the report found. The researchers tracked crime statistics in seven development-heavy counties that account for a majority of the drilling done to date in the state: Bradford, Susquehanna, Tioga and Lycoming counties in northeastern Pennsylvania and Fayette, Greene and Washington counties in southwestern Pennsylvania. They found increases, decreases and steady figures in crime rates in all seven counties, but the combined statistics showed crime decreasing in 2008 and 2009 and increasing in 2010. But crime rates in non-Marcellus counties have declined every years since 2007.
Kinder Morgan Energy Partners LP (KMP) and Martin Midstream Partners LP have formed joint venture (JV) Pecos Valley Producer Services LLC to develop a multi-commodity rail terminal in Pecos, TX, to serve producers in the Permian Basin of West Texas. Besides their crude oil services, the partners plan to offer immediate natural gas liquids storage, takeaway and fractionation services, and will seek to develop natural gas and crude gathering and processing systems within the area. The JV also has held initial discussions to develop a hydraulic fracturing sand unit train terminal to service Reeves County and surrounding counties.
As their country dreams of becoming “the second Norway” of natural gas, scientists at the Polish Geological Institute (PGI) has issued a report on the potential environmental impacts of hydraulic fracturing (fracking) after studying a well site last year through an initiative of Poland’s Ministry of the Environment. The team of specialists studied environmental conditions and groundwater before, during and after fracking. “All the operations carried out at the well site area were conducted in the way minimizing risk of negative impact on groundwater,” the report said. “This includes recycling of the flowback fluids, storage of waste in leak-proof containers and protection of land surface with concrete plates and liners made of plastic firm.” Further, the report said the use of large quantities of water in fracking operations did not result in a decrease of groundwater resources in the Lebien well area. This was due to the fact that water was being gathered in a leak-proof reservoir for several months, in quantities consistent with a water rights permit.
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