Penn Virginia to expand Marcellus gas gathering system

Penn Virginia Resource Partners will begin building natural gas pipeline extensions in the Marcellus shale in Pennsylvania, providing an outlet for producers to link to El Paso Corp.'s Tennessee Gas Pipeline and Williams Cos.’ Transcontinental pipeline for shipment to markets in the US Northeast. Penn Virginia reached transport agreements with Royal Dutch Shell PLC, Southwestern Energy, Range Resources Inc., and Inflection Energy, to underpin the extensions.

Penn Virginia plans to begin work on extending its 30-in. OD Lycoming West trunkline by 19 miles through Lycoming County and into Tioga County, Pa., within 2 weeks for completion by yearend. Penn Virginia also will build laterals for Shell and Range Resources to move gas from wellheads to Lycoming West for transport to the Transco line and by 2014 to Tennessee Gas Pipeline 300.

Under the 20-year Shell agreement, Penn Virginia will build a 24-in. OD lateral by this year’s fourth quarter, which will connect the Lycoming County system to Shell’s Texas Creek gathering system in Bradford County, Pa. Penn Virginia will complete another 16-in. OD lateral by yearend 2013 or early 2014, connecting the Lycoming County system to Shell’s Wellsboro Loop gathering system in Tioga County, Pa. Penn Virginia says these laterals will provide operational flexibility for Shell to move gas south to Transco, as well as the ability to move gas between the 24-in. lateral and Shell’s proprietary pipeline systems.

The Range Resources agreement provides for gathering, compression, and related services under terms similar to those of existing agreements, as well as construction of lateral lines and compression facilities, with a multiyear build-out schedule, staged to follow Range Resources’ drilling program.

The Inflection agreement dedicates defined acreage in Lycoming County, east of Penn Virginia’s existing Lycoming County system, to Penn Virginia, and provides Inflection with firm volume capacity and compression services, and a connection to Transco. Penn Virginia will build the gathering system in five phases designed to match Inflection’s drilling and production schedule, with construction of each subsequent phase tied to Inflection’s achieving certain well completion and production milestones.

Assuming all milestones are met, plans call for a total of 10 miles of 16-in. OD trunkline and 15 miles of lateral gathering lines, together with associated compressor stations, providing an expected total system capacity of 380 MMcfd by 2013.

The 15-year agreement with Southwestern provides for a firm take-or-pay capacity commitment in years 2 through 8, with an option to increase that commitment during this period. The agreement also provides Southwestern with interruptible capacity subject to availability.

Penn Virginia last month agreed to a $1 billion purchase of Chief Oil & Gas's Marcellus gas gathering assets (OGJ Online, Apr. 10, 2012). The company will spend about $380 million between 2012 and 2018 on natural gas infrastructure.

Contact Christopher E. Smith at chriss@ogjonline.com.

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