Targa Resources Partners, Sanchez Energy form processing, gathering Eagle Ford joint ventures

Targa Resources Partners and Sanchez Energy Corp. announced 50:50 joint ventures to build a cryogenic gas processing plant in La Salle County, Tex., and gas-gathering pipelines linking production to the plant, which is scheduled to be operational in early 2107.

The plant will have initial capacity of 200 MMcfd along with 45-miles of pipeline to connect Sanchez Energy's Catarina gathering system in the South Texas Eagle Ford to the new plant, which is being designed to be expandable to 265 MMcfd to handle growing Eagle Ford production.

Sanchez Energy agreed to contribute $115 million to the joint venture while Targa Resources agreed to contribute $125 million, the companies said in October. Both companies are based in Houston.

Targa Resources will manage construction and operation of the plant and gathering lines. The joint venture will receive transportation fees.

Earlier this year, Targa Resources Corp. bought Atlas Pipeline Partners LP and Atlas Energy LP. Together, those two transactions totaled $7.7 billion. Targa Resources Corp. is the parent of Targa Resources Partners (TRP).

Bob Perkins, TRP chief executive officer, said his firm is focused on improving its presence and performance in the Eagle Ford.

He said the joint venture with Sanchez Energy "aligns producer and midstream interests, providing Targa with a strategic plant on the west side of our systems supported by a significant acreage dedication and a long-term, fee-based contract with a very successful producer."

Terms call for Sanchez Energy to have firm capacity for 125 MMcfd of plant processing and pipeline capacity for 5 years with the option to deliver additional volumes. Sanchez Energy dedicated its Catarina-area production for a 15-year term with the option to commit additional production.

Tony Sanchez III, chief executive officer of Sanchez Energy, said the new plant will deliver better liquids yields and lower processing fees "resulting in lower operating costs, higher netbacks, and greater price realization on our natural gas liquids revenue stream."

"The joint ventures are expected to also improve our access to end markets, including the developing Mexico and global LNG markets," he said.

Sanchez sells assets to its MLP

Sanchez Energy sold 150 miles of gathering lines and compression equipment to its master limited partnership affiliate, Sanchez Production Partners, for $345 million. The transaction marked a continuing trend of independent producers selling midstream assets to raise cash.

The parent company is Sanchez Oil & Gas Corp., a private company.

The midstream sale "highlights our ability to capture the full spectrum of value in our asset base, raise capital outside of traditional markets, and improve our financial flexibility," said Tony Sanchez III, Sanchez Energy chief executive officer.

In addition, Sanchez Energy might sell other assets as well to maintain a strong balance sheet, he said.

Previously, several producers acquired pipelines and tanks to transport and store their own crude when oil prices were higher. But some of those companies are now selling such assets.

Pioneer Natural Resources sold off pipelines and other midstream assets in the Eagle Ford earlier this year, collecting $1 billion, and Matador Resources recently sold off similar equipment for $143 million.

Sanchez Energy has 226,000 net acres of Eagle Ford acreage, having doubled its stake there last year when it bought properties from Royal Dutch Shell for $639 million.

On Nov. 9, Sanchez Energy said its Eagle Ford program remains focused on Catarina where well results in East Catarina continue to exhibit a flat decline profile. At Cotulla, Sanchez Energy brought six wells on stream at an average cost of $3.7 million/well.