Expenses related to pipeline expansion projects were a drag on profits in 2Q2009, with earnings declining to $20.3 million (12 cents/share) compared with $64.7 million (50 cents/share) in 2Q2008, Houston-based Boardwalk Pipeline Partners said Monday.
Transportation revenues (excluding fuel) from expansion projects were approximately $58 million less than than anticipated during 2Q2009 due to operating those pipelines at reduced pressures and temporary shutdowns related to the discovery and remediation of anomalies, CEO Rolf Gafvert said during a conference call with investors.
Last week Standard & Poor’s Ratings Services (S&P) revised its outlook on Boardwalk to “negative” from “stable” and affirmed its “BBB” corporate credit rating, citing the company’s work on correcting anomalies on its new large-diameter Gulf Crossing Pipeline before it went into service in late June (see Daily GPI, July 27). “The rating action reflects concerns about increasing business and financial risk at Boardwalk,” S&P said. “This is most notable due to lower expected cash flows in 2009 as the company remediates sections of its expansion pipelines, the uncertainty of the ultimate cost, and the timing the remediation work will be complete and Boardwalk will receive approval by the Pipeline and Hazardous Materials Safety Administration [PHMSA] to operate its pipelines at higher pressures.”
Over the last three months Boardwalk has made “substantial progress” addressing anomalies on its East Texas Pipeline, Southeast Expansion and Gulf Crossing project, Gafvert said Monday.
“We have been working diligently to remediate those anomalies and to gain authority to increase operating pressures on our expansion projects,” Gafvert said.
Boardwalk’s 356-mile Gulf Crossing Pipeline has completed remediation of pipe anomalies on its system and was recently given the green light by the Department of Transportation (DOT) to operate the pipeline at normal operating pressures of up to 72% of the specified minimum yield strength (SMYS) (see Daily GPI, July 1). Anticipated peak-day delivery capacity for Gulf Crossing in July is estimated at 1.3 Bcf/d and is expected to climb to 1.4 Bcf/d, subject to receipt of a special permit from PHMSA to increase operating pressures up to 80% of SMYS.
Portions of the Southeast and East Texas pipelines that were shut down for anomaly remediation in May and June are expected to be operating at normal operating pressures of up to 72% of SMYS by Aug. 1, according to Gafvert. Boardwalk is seeking authorization from PHMSA to increase operating pressures up to 80% of SMYS, he said.
Boardwalk subsidiary Texas Gas Transmission’s Fayetteville and Greenville laterals provide takeaway capacity from the Fayetteville Shale play in north-central Arkansas. They currently are running at lower-than-normal operating pressures while Texas Gas assesses and remediates anomalies on a 20-mile section of the Fayetteville Lateral between Bald Knob, AR, and Lula, MS, a spokesperson said.
The Fayetteville Lateral is the larger of the two, extending 166 miles from Grandview, AR, in Conway County to an interconnection with Texas Gas’ existing mainline system. In April FERC approved Texas Gas’ request to expand compression to boost capacity on the Fayetteville Lateral to 1.3 Bcf/d from approximately 800 MMcf/d, and to boost the capacity of the Greenville Lateral in Mississippi to 1 Bcf/d from 770 MMcf/d (see Daily GPI, April 17). The Greenville Lateral consists of 96 miles of pipeline that runs from the existing Greenville Compressor Station to a new delivery point near the Town of Kosciusko in Attala County, MS. The compression expansion is due to be in service in 2010. Key shippers on the 36-inch diameter laterals are Southwestern Energy Services, XTO Energy Inc. and Chesapeake Energy.
In ongoing testing of the laterals, slightly fewer than 1% of joints appear to have anomalies, Gafvert said.
“We are working with PHMSA on a remediation protocol to be adopted to return these pipes to standard operating pressures. We expect that anomaly remediation could begin as soon as September and may take one to five months to complete. During that time portions of the laterals may be shut down for remediation and Boardwalk will attempt to schedule repairs in a manner which will maximize the amount of gas that may flow,” Gafvert said.
Boardwalk spent $477.5 million on expansion and growth capital expenditures in the first half of 2009, including $216.4 million on the Fayetteville and Greenville laterals and $178.3 million on the Gulf Crossing project.
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