Eagle Rock to buy BP's Texas Panhandle gas processing assets

Eagle Rock Energy Partners LP, Houston, will pay $227.5 million in cash for two BP America Production Co. processing plants and associated gathering that serves the Texas Panhandle.

At the planned Oct. 1 closing, Eagle Rock said it and BP will enter into a 20-year, fixed-fee gas gathering and processing agreement under which Eagle Rock will gather and process BP's production from existing connected wells.

Under the agreement’s terms, BP and its joint venture partners will commit to Eagle Rock all future gas production from new wells drilled within an initial 2 years and within a 2-mile radius of the existing gathering system.

Panhandle system

BP’s Panhandle system encompasses about 350,000 acres and more than 500 drilling locations. In first-half 2012, the system gathered an average of 180 MMcfd, and the partnership expects to continue to expand the overall throughput from the region, based on drilling programs from BP and third-party producers.

The Panhandle system consists of two cryogenic processing plants—the 190-MMcfd Sunray and the 50-MMcfd Hemphill, according to OGJ’s latest Gas Processing Report (OGJ, May 7, 2012, p. 88)—and about 2,500 miles of gathering pipelines serving more than 350,000 acres in Lipscomb, Hemphill, Roberts, Ochiltree, Hansford, Hutchinson, Sherman, and Moore counties.

About 2,100 wells are currently connected to BP’s system, Eagle Rock said. Its gas production represents about 55% of current system throughput, which will be covered by the fixed fee-based contracts. In the future, incremental BP and joint-venture partners' natural gas production dedicated to the Panhandle system will also be covered under the contracts.

The Panhandle system lies immediately adjacent to and complements Eagle Rock's existing Texas Panhandle assets, which include eight processing plants and 3,963 miles of gathering pipelines. Hemphill County sits in the heart of the Granite Wash and, said the announcement, has recently seen increased drilling “due to producers' attractive drilling results in the area.”

The Hemphill plant and supporting infrastructure were designed to accommodate one or more additional expansions and lie just north of Eagle Rock's recently completed 60-MMcfd cryogenic Woodall plant (OGJ Online, Aug. 1, 2011).

BP’s Panhandle system also includes 47 mainline gathering compressors, 25 satellite gathering compressors, and 19 in-plant compressors.

Integrating the Panhandle system into the existing Eagle Rock system (described earlier) will result in 6,463 miles of gathering serving more than 5,000 wells and in 480 MMcfd of processing capacity serving the Panhandle, with an additional 60 MMcfd of capacity expected to come online first-half 2013 upon completion of Eagle Rock's previously announced Wheeler plant (OGJ Online, Nov. 1, 2011).

Eagle Rock estimates total current gathering volumes from the combined systems at about 380 MMcfd.

Gathering, processing agreement

The initial 20-year term gas gathering and processing agreement will provide for 100% fixed fee-based revenues to Eagle Rock and includes a large production dedication area from BP and its partners.

Subject to the agreement, all of BP's wells currently connected to the Panhandle system will be dedicated to Eagle Rock for 20 years with the option to extend for two separate 5-year increments.

In addition, all drilling by BP and its partners for 2 years and within 2 miles of the Panhandle system, which encompasses about 350,000 acres and more than 500 drilling locations, will also be dedicated to Eagle Rock. The agreement can also be extended for 2-year increments.

Third-party producers connected to the Panhandle system and active in the area include Apache, Chesapeake, Comstock, ConocoPhillips, EOG, ExxonMobil, Linn Energy, Mewbourne Oil Co., and Unit Petroleum. While these producers are not subject to the gathering and processing agreement, said Eagle Rock, the company “anticipates growing third-party volumes through enhanced commercial efforts” on the Panhandle system, where BP was “previously capacity-constrained.”

Among the advantages, according to Eagle Rock, the transaction expands and complements the company’s existing gathering and processing into the Granite Wash, Cleveland, Tonkawa, and Hogshooter plays in the Texas Panhandle, establishes a long-term partnership with BP through BP's commitment of existing and future production in the Panhandle, and increases Eagle Rock's fixed-fee contract mix within its midstream business.

Contact Warren R. True at warrent@ogjonline.com.

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