Kinder Morgan & Phillips 66 Eagle Ford Crude Delivery Deal to Supply Sweeny Refinery

Sweeny TX Refinery Phillips 66

Kinder Morgan (KMP) and Phillips 66 have reached an Eagle Ford crude delivery deal. KMP will build a 12-inch, 27 mile lateral from its Eagle Ford Crude Condensate pipeline to Phillips 66's Sweeney Refinery in Brazoria County.

Phillips is committing to take a "significant portion" of the pipeline's initial 30,000 b/d of capacity. The pipeline will have the potential to be expanded to 100,000 b/d if needed.

KMP will invest approximately $90 million in the project, which also involves adding associated receipt facilities by constructing a five-bay truck offloading facility and three new storage tanks with approximately 360,000 barrels of crude/condensate capacity at Kinder Morgan’s DeWitt Station in DeWitt County, Texas, and Wharton Pump Station in Wharton County, Texas. Pending receipt of environmental and regulatory approvals, construction is scheduled to begin in the fourth quarter of 2012.

Kinder Morgan's Eagle Ford Crude Condensate pipeline was brought online in June of 2012.

Read the full press release at kindermorgan.com

Eagle Ford Natural Gas is Headed for Mexico - Major Pipeline Expansions Planned

Gas Pipeline Arid

Eagle Ford natural gas pipeline expansions are headed for Mexico. An $8 billion expansion of Mexican natural gas infrastructure is being pushed forward. The early focus is on industrial cities in the northern half of the country where a $3 billion expansion is planned.

"Mexico has a unique opportunity, we have access to the world's cheapest gas," Mexican Energy Minister Jordy Herrera said of the U.S. supply in announcing the new pipeline plans earlier this year. "This is competitiveness for the industry of our country."

U.S. companies are lining up to help supply and construct the proposed Mexican infrastructure. Expect to see companies like Kinder Morgan reverse the direction of some of its current natural gas flows and expand pipelines into Mexico. The Eagle Ford currently produces almost 3 bcf/d, but that number could almost triple over the next five years. That's a lot of natural gas to be absorbed in South Texas. Actually, its much more than the region can absorb. If 5+ bcf/d of additional supply comes online, the natural gas will need a market. That market will either come from Mexico or from across the globe shipped as LNG. Both pipelines and liquefaction facilities come with big price tags, but don't expect PEMEX (Mexico's national oil company) to wait around. The country needs natural gas and the Eagle Ford is positioned well to answer.

Read the full story detailing Mexico's plans at chron.com

Copano Energy Eagle Ford Assets Add to Earnings

Copano Energy's Eagle Ford pipeline and midstream assets boosted the company's bottom line in the fourth quarter of 2011. The Texas segment of the company reported growth of 27% in gross margins from Q4 2010 to Q4 2011. The primary boost was from increased pipeline throughput in the Eagle Ford Shale and Barnett Combo plays.  Throughput volumes in the South Texas shale play were up 657%. How's that for volume growth.....

Eagle Ford Gathering, LLC also completed its 117-mile pipeline in December 2011. The separate entity, which is partnership between Copano and Kinder Morgan, provided gathering services for an average of 145,551 mmbtu/d in the quarter.

The quarter results also followed an announcement that the company will begin a DK Pipeline expansion that will extend the pipeline 65-miles into McMullen County.

Apollo Buys El Paso's E&P Unit Before Kinder Morgan Closes on the Pipeline Segment

El Paso Corp Eagle Ford Shale Map

Apollo and El Paso reached a $7.15 billion agreement for El Paso's E&P segment. The deal is subject to the closing of the El Paso-Kinder Morgan pipeline merger.

El Paso's exploration and production segment has been on the sales block since the Kinder Morgan deal was announced, but the question remained whether the assets would be sold in pieces or all together.

While Apollo has been rumored to be considering the deal, it comes as a bit of a surprise that the private equity group acquire El Paso E&P. Most industry experts thought El Paso would be a great fit for an international company looking to expand its footprint in the U.S. (e.g. Statoil-Brigham). Low natural gas prices that are limiting many companies' upstream budgets might have opened a window for the Apollo group to step in.

Apollo Global Management is leading a group that includes Riverstone Holdings, Access Industries, as well as others in buying the E&P unit. The deal will have almost no tax consequences for Kinder Morgan and the company will use the proceeds to pay down debt taken on to finance the purchase El Paso Corp.

El Paso's assets are attractive even at low natural gas prices because the company has significant oil/liquids producing acreage positions in the Uinta Basin in Utah, the Niobrara in the Rockies, the Wolfcamp in West Texas, and the Eagle Ford Shale of La Salle and Dimmit counties.

Apollo will likely increase the pace of development in the oil & gas areas of the company's portfolio. Private equity firms do not practice a long-term buy and hold strategy. El Paso will be held for a period and later re-offered to the market. Typically, private equity firms hold investments for a 3-7 year period and target a return of 2-3 times their investment.

Kinder Morgan Eagle Ford Infrastructure Updates

Kinder Morgan provided an Eagle Ford pipeline and midstream update in its quarterly call last week. The company realized better results in relation to it's pipeline and gathering network in the Eagle Ford, while staying on target to complete a $220 million condensate pipeline that will terminate in the Houston Ship Channel. Kinder also announced a $130 million condensate processing facility in Galena Park, TX, that will have capacity of 25,000 b/d initially (potential for 100,000 b/d).  Quotes below:

Natural Gas Pipelines:

....In the quarter, Rockies Express Pipeline produced improved results due to a property tax settlement, equity income from the Eagle Ford Gathering and EagleHawk Field Services joint ventures increased due to higher volumes, and Kinder Morgan Treating benefited from the SouthTex and Gas Chill acquisitions. “Growth for the year versus 2010 was attributable to contributions from the KinderHawk and EagleHawk acquisitions, Fayetteville Express Pipeline, commencement of commercial operations of Eagle Ford Gathering, increased revenues from the Midcontinent Express Pipeline expansion, and improved gathering results due to favorable processing spreads on Casper-Douglas and increased volumes at Red Cedar,” Kinder said. Results for both the quarter and the year were impacted by lower results from the Trailblazer and KMIGT pipelines.

$350 Million in Eagle Ford Condensate Pipeline Infrastructure

Kinder is investing approximately $130 million to build a petroleum condensate processing facility near its Galena Park terminal on the Houston Ship Channel. The initial throughput capacity of 25,000 barrels per day (bpd) is being supported by a fee-based contract with a major oil customer, and the plant can be expanded up to 100,000 bpd. The company will own and operate the plant, which will split condensate into its various components. It is expected to be in service by January of 2014.

The location of the facility, when combined with Kinder Morgan’s previously announced $220 million crude/condensate pipeline, will provide customers with unparalleled connectivity to crude oil and clean products markets on the Texas Gulf Coast. The crude/condensate pipeline will transport product from the Eagle Ford Shale in south Texas to the Houston Ship Channel. It will consist of almost 70 miles of new-build construction and 113 miles of converted natural gas pipeline. Construction of the pipeline continues and the company expects it to begin service in the second quarter of 2012.

Eagle Ford Gathering

Eagle Ford Gathering, a joint venture between KMP and Copano Energy in south Texas, executed interruptible service contracts with several producers totaling more than 90,000 MMBtu per day, of which over 21,000 MMBtu per day will convert to long-term firm contracts when the joint venture’s processing capabilities increase in the second quarter of 2013. The joint venture also completed its delivery facilities to the Formosa Point Comfort processing plant in Jackson County and expects to initiate flow to Formosa in February 2012.

The joint venture has about 400 miles of pipelines (including its capacity rights in certain KMP pipelines) with capacity to gather and process over 700,000 MMBtu per day. Including its 50 percent equity interest in Eagle Ford Gathering and its 25 percent interest in EagleHawk Field Services (and excluding the crude/condensate pipeline), this segment has committed approximately $400 million to expansion projects in the Eagle Ford Shale.

Read the entire press release at KinderMorgan.com