March 2017, Vol. 244, No. 3

In The News

In the News

U.S. Shale Production Likely to Peak over Next Decade, EIA Says

U.S. shale and tight oil production will increase to more than 6 million bpd in the coming decade, making up most of total U.S. oil production, according to a recent report by a federal Energy Information Administration. U.S. shale oil production has risen significantly since 2010, driven by technological improvements that have reduced drilling costs and improved drilling efficiency. In 2015, oil companies pumped 4.9 million bpd out of shale and tight oil fields and, for the first time, made up more than half of total U.S. oil production.

But a report by the EIA indicates tight oil production will flat line after 2026 as drillers move into less productive oil fields and well productivity decreases. South Texas’ Eagle Ford will begin to decline after 2020; North Dakota’s Bakken after 2030, the report says. Production in West Texas’ Permian Basin, which is larger and deeper, remains strong through 2040.

The administration analyzed other scenarios that lead to very different outcomes, the report notes. If technology continues to improve, for instance, tight oil production could rise to 11 million bpd day or two-thirds of total U.S. output, almost double the baseline scenario. Alternatively, if technology dips, total U.S. oil production would, too, and tight oil.

AltaGas Buying WGL Holdings for $6 billion to Expand U.S. Foothold

Calgary-based AltaGas Ltd. has announced plans to buy WGL Holdings Inc. for $6 billion. “We are fortunate to be buying a storied company with nearly 170 years of history, which in many ways is nearly the mirrored image of AltaGas,” said CEO David Harris., adding that the deal would allow AltaGas to expand its energy infrastructure portfolio in North America, particularly in the Marcellus Shale formation in the northeastern U.S. as well as in clean power.

Washington, D.C.-based WGL Holdings was created in 1848 as the Washington Gas Light Company and is parent company of natural-gas utility Washington Gas, which supplies the capital region. WGL owns extensive pipeline and energy storage assets, as well as wind and solar projects that would match with AltaGas’s own hydro, battery storage, and other renewable assets. GL Holdings will keep its U.S. office and staff and AltaGas will relocate the headquarters of its U.S. power business to WGL’s service region.

Noble Midstream Partners Plans JV to Expand Delaware Basin Footprint

Noble Midstream Partners LP and Plains All American Pipeline, L.P. (PAA) have agreed to form a 50/50 joint venture to acquire Advantage Pipeline, L.L.C., which owns the 70-mile, 16-inch crude oil pipeline in the southern Delaware Basin.  Both companies will build new pipelines to connect current facilities to the JV-owned system.

The JV will acquire Advantage for $133 million.  Noble Midstream’s 50% interest totals $66.5 million, while the majority of PAA’s share is expected to be paid in PAA units issued to certain of the sellers at closing.

The Advantage Pipeline, constructed in 2013, has 150,000 bpd shipping capacity from Reeves County, TX, to Crane County, TX. The system includes 490,000 barrels of combined crude storage at three separate trucking stations in Reeves, Pecos and Crane counties.

Upon closing, throughput growth on the Advantage system will be driven by an acreage dedication from Noble Energy, Inc., and a volume commitment from Plains Marketing, L.P. Noble Midstream will serve as the operator and will construct a wholly owned, 15-mile pipeline to deliver crude oil to the Advantage Pipeline from its central gathering facility. PAA will construct a pipeline to connect its Wolfbone Ranch facility to the Advantage Pipeline near Highway 285. The connections are estimated to be completed in the second quarter.

Targa Resources Acquires Permian-Based Assets

Houston-based Targa Resources Corp. is buying pipeline assets in the increasingly active Permian Basin for up to $1.5 billion. Targa is acquiring pipelines from Denver-based Outrigger Energy within the Permian’s Delaware and Midland basins. Targa will pay a minimum of an initial $565 million that could top $1.5 billion based on performance measures by Feb. 28, 2019.

The Outrigger Delaware gas-gathering and processing and crude-gathering assets are located in Loving, Winkler and Ward counties that are already supported by contracts for an average of 14 years. Targa plans to connect the network to its existing Sand Hills system, extending Targa’s Permian Basin footprint across the Delaware and Midland Basins. Targa will evaluate future connections to its Versado system. There is 40,000 bpd of crude gathering capacity on the Outrigger Delaware system. The Outrigger Midland gas gathering and processing and crude gathering assets are located in Howard, Martin and Borden counties. Targa expects to connect the Outrigger Midland assets to its WestTX system in Martin County

SoCalGas Breaks Ground on First Renewable Natural Gas Pipeline

Southern California Gas Co. and CR&R Environmental have started construction of an 8-inch pipeline that will deliver renewable natural gas (RNG) into the SoCalGas distribution system for the first time.

The 1.4-mile pipeline will connect an existing SoCalGas pipeline to a new CR&R facility in Perris, Calif., where an anaerobic digester will produce methane from organic waste. The methane gas will be refined using pollution-free technology, distributed through SoCalGas’ pipeline infrastructure and used to power CR&R’s fleet of approximately 900 waste-hauling trucks.

“We see this de-carbonization of our pipeline system as the way of the future,” said Lisa Alexander, SoCalGas’ vice president, customer solutions and communications.

CR&R expects to finish construction of its Perris facility this spring, and SoCalGas plans to begin accepting RNG into its pipeline system by June.

Border Tax Could Sting Canadian Oil Producers

Canadian oil and gas producers are realizing that the Trump administration could be more challenging than expected if it moves forward with the so-called border adjustment tax. While other Canadian sectors have been vocal in condemning the proposal, “no sector … will be more affected than petroleum,” said Colorado-based energy expert Philip Verleger, principal of consultancy PKVerleger.

He believes Canadian exporters of oil and oil products are in for a nasty surprise. “Bluntly speaking, for oil the law’s passage is pure mercantilism. Exporters from Mexico, Canada, and the rest of the world could be shut out,” Verleger recently said. Under the proposal, U.S. businesses that rely on imported inputs would lose the ability to deduct those costs in calculating their taxable income.

The reform would effectively boost the cost of imported goods by 25%, reducing the value to Canadian producers, whether oil or refined products, Verleger told The Brattle Group, a U.S. consultancy. Canadian producers export more oil to the U.S. – 3 mpbd – than any other country.

U.S. Settles with Magellan Midstream Partners

A subsidiary of Magellan Midstream Partners will complete $16 million in upgrades to pipelines and pay a $2 million fine as part of a federal settlement following pipeline ruptures in three states.

Federal officials said the first incident occurred in February 2011 when a pipeline carrying petroleum ruptured north of Texas City, TX, spilling hundreds of gallons. Later that year two lines were ruptured when struck by heavy machinery near Nemaha, NE, causing over 2,800 gallons of diesel and jet fuel to spill. The third leak spilled about 1,800 gallons of diesel near El Dorado, KS in May 2015.

The Pipeline Fight: Protesters Rally Against Protesters

First came the Trans-Pecos pipeline. Then the pipeline protesters arrived. Now the protest protesters are mobilizing. A pro-industry group, North Texans for Natural Gas, has launched an online petition in support of Dallas-based Energy Transfer Partners’ Trans-Pecos Pipeline and continued energy development in West Texas.

“Texans don’t want professional protesters coming in from out of state to try to shut down our energy economy,” said Steve Everley, spokesman for the natural gas advocacy group.

In December, activists began opening three camps in the high desert near Big Bend National Park.  Following the example set by protesters at Keystone XL and Dakota Access pipelines, they hope to attract hundreds of protesters to block Trans-Pecos and development of recently discovered oil and gas fields.

But the gas group, funded by four big oil and gas companies – Oklahoma City’s Devon Energy, Houston’s EnerVest and EOG Resources, and ExxonMobil’s Fort Worth-based subsidiary, XTO Energy – says most Texans embrace the jobs and economic opportunities provided by such development. The Trans-Pecos will generate at least $7 million in annual tax revenues to the counties through which the pipeline travels. Oil and gas development is the “lifeblood” of West Texas economy and supports more than 444,000 jobs, the group said.

“Anti-pipeline groups think they have momentum after Keystone XL and Dakota Access,” Everley said. “But this is Texas. This is where we fight back.”

Protesters who Hung from Rafters at NFL Game Charged with Three Crimes

Two protesters have been charged with burglary, disorderly conduct, and trespassing after climbing into the rafters at U.S. Bank Stadium during a Minnesota Vikings game last fall and unfurling a banner to protest the construction of the Dakota Access Pipeline with U.S. Bank financing.

NextDecade Leases 1,000-Acre Texas City Site for LNG Export Project

NextDecade, LLC has leased a site at Shoal Point from the state of Texas and city of Texas City for potential development of a multibillion-dollar LNG export facility.

Texas City owns almost 376 acres at Shoal Point, approximately 40 miles southeast of Houston, while the Texas General Land Office manages the adjoining 618 acres of state land.

“Now more than ever, the U.S. has the potential to benefit from the incredible natural gas resources in Texas,” said Kathleen Eisbrenner, NextDecade chairman and CEO. The ports of Houston, Texas City, and Galveston form the largest port complex in North America and the NextDecade project would be the first LNG facility in the area.

ConocoPhillips Reports Major Oil Discovery in Alaska

ConocoPhillips has found a new Alaskan oil vein 90 miles west of the prolific Prudhoe Bay field, one that may hold 300 million barrels of oil. The discovery could become a multibillion-dollar project that takes more than a half-decade to fully develop, the company said. The oil was found in the northeast part of Alaska’s federally owned, 37,000-square mile National Petroleum Reserve, where ConocoPhillips drilled two exploration wells early last year.

The so-called Willow discovery, ConocoPhillips said, could be capable of producing 100,000 bpd. It plans to begin 3D seismic evaluations this month, which could firm up its initial tests. The company believes it could begin pumping commercial quantities of crude in 2023. The two exploration wells are 28 miles west of a production facility in the region, the Alpine Central Facility, making it a more economic find.

Anadarko Petroleum Corp. has a 22% stake in the discovery, while ConocoPhillips owns the other 78%. The two companies have acquired approximately 594,900 acres on the western North Slope of Alaska for exploration.

Transco Network Sets Record Volume in Warming Northeast

The nation’s largest natural gas pipeline system has been funneling more gas than ever to help warm the Eastern Seaboard. Transco interstate pipeline network made record-setting deliveries to meet demand driven by cold weather conditions. A new single-day delivery record was set on Jan. 8, as well as a new three-day record from Jan. 7-9.

Tulsa-based Williams Cos. said it delivered a record-breaking 13.7 million dekatherms of natural gas on Jan. 8, breaking the previous high of 13.5 dekatherms on Jan. 5, 2015. Natural gas prices have been on an upswing with greater demand, but 2016 still saw the lowest natural gas prices in nearly 20 years. Natural gas production continues to exceed demand in the U.S.

Pipeline in Canada Needs Replacing After Vandalism

A section of an intra-provincial oilfield pipeline under construction in Canada’s oil heartland of Alberta has to be replaced after it was damaged by an act of “mischief,” authorities said. The incident was in Hythe, 500 km (310 miles) northwest of Edmonton, and occurred over a weekend.

The Royal Canadian Mounted Police said it appeared the culprit or culprits tried to use construction equipment onsite to dig up a pipeline owned by Paramount Resources Ltd., causing an estimated C$500,000-700,000 in damage.  No product was leaked.

Tallgrass Energy Partners, REX Announce Ultra Resources Settlement

Rockies Express Pipeline LLC (REX) and Tallgrass Energy Partners, LP announced that REX has agreed to settle its $303 million breach of contract claim against Ultra Resources, Inc. The settlement will be submitted to the U.S. Bankruptcy Court for approval and implemented in connection with Ultra’s Chapter 11 plan of reorganization.

The terms of the settlement stipulate that a cash payment of $150 million be made to REX six months after Ultra emerges from bankruptcy, but no later than Oct. 30, 2017. In addition, Ultra has agreed to enter into a new seven-year firm transportation agreement with REX commencing Dec. 1, 2019, for service from west-to-east of 200,000 dekatherms per day at a rate of $0.37, or $26.8 million annually.

Valero Energy Partners Acquires Undivided Interest in Red River Pipeline 

Valero Partners Wynnewood LLC, an indirect wholly owned subsidiary of Valero Energy Partners LP, acquired a 40% undivided interest in the Hewitt segment of Plains All American Pipeline, L.P.’s Red River pipeline for $70 million. The Hewitt segment is a newly constructed 138-mile, 16-inch crude oil pipeline with 150,000 bpd of capacity. The purchase includes a 40% undivided interest in two 150,000 shell barrel capacity tanks at Hewitt Station.

The Hewitt segment originates at Plains Marketing L.P.’s Cushing, OK, terminal and ends at Hewitt Station in Hewitt, OK. The pipeline began supplying crude oil to Valero’s refinery in Ardmore, OK, in January. The Partnership retains a right to participate in future expansions of the Hewitt segment of the Red River pipeline, which Plains will operate.


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