Midstream News

Sept. 18, 2013

Blue racer midstream secures $800M credit facility

Blue Racer Midstream LLC has secured a five-year, $800 million credit facility, which can be expanded to $1 billion in the future. Formed in December 2012, Blue Racer is a $1.5 billion joint venture between Caiman Energy II LLC and Dominion Resources. The credit facility supports the Blue Racer's plan to develop midstream assets in the Utica Shale over the next two to three years, including natural gas gathering, processing, fractionation and NGL transportation. Wells Fargo Securities LLC and RBS Securities Inc. acted as joint bookrunners and joint lead arrangers. A syndicate of 19 banks participated in the credit facility, with Comerica Bank, RBC Capital Markets, SunTrust Robinson Humphrey Inc., and US Bank National Association also acting as joint lead arrangers. Vinson & Elkins provided legal counsel to Blue Racer.

News of the credit facility follows that of Dominion transferring ownership of the Natrium Natural Gas Processing and Fractionation Plant to Blue Racer on Aug. 9. With cryogenic processing capacity of 200 MMcf/d already online, Natrium is the first large-scale processing plant to serve rich-gas production in the Utica. Blue Racer has started construction of a second 200 MMcf/d cryogenic processing plant, Natrium II, which will bring the facility's total processing capacity to 400 MMcf/d by the end of the first quarter of 2014.

Douglas-westwood: LNG spending to double

A strong recovery in expenditure on LNG facilities now underway worldwide driven by a growing demand for natural gas and, according to Douglas-Westwood's (DW) World LNG Market Forecast, global Capex will total nearly $228 billion during the 2013-2017 period, an increase of 109% over the preceding five years.

The spending surge includes capital expenditure on base-load onshore and offshore fixed LNG liquefaction, LNG carriers and LNG regasification via both onshore and offshore fixed import terminals.

Report author, Michelle Gomez, commented, "The liquefaction developments will drive expenditure, with Australasia and North America playing a fundamental role in bringing new supply into the international market.

"Spend will peak in 2015 and decline slightly in 2016 and 2017. This is due to the surge of Australian LNG export projects reaching completion. The decline is, however, offset to some extent by significant growth in most other regions, particularly Eastern Europe & FSU, Africa and Asia. Liquefaction developments will contribute $143 billion (63%) of forecast Capex. Import terminals' spend will grow and total $50 billion (22%). Gas carrier expenditure will increase at a CAGR of 25% and total $35 billion (15% of forecast Capex.)"

Steve Robertson, DW director, commented, "DW expects continued change in the focus areas for LNG export projects. While the Middle East remains one of the top exporters, the region will see very little expenditure within the forecast period. Australian spend however, will surge, peak and start to decline somewhat.

"As in many other sectors of the oil & gas industry, reducing the costs of LNG projects remains a major challenge. However, beyond the 2017 time frame of DW's forecasts, significant potential for major growth in LNG capital expenditure can be seen, due to the large discoveries in East Africa and Eastern Mediterranean, together with increased focus on exports of US shale gas. Furthermore, the considerable potential reserves of the arctic offer a longer-term potential."

Rose Rock acquires transportation assets from Barcas for $47M

Tulsa, OK-based Rose Rock Midstream LP, formed by SemGroup Corp., has agreed to acquire the assets of Barcas Field Services LLC, which owns and operates a crude oil trucking fleet, for $47 million.

The transaction, called "incrementally positive" by analysts at Baird Equity Research, includes the acquisition of 114 trucks and 120 trailers in the growing Rockies and Midcon region, as well as long-term take-or-pay transportation agreements.

"We maintain our positive stance on RRMS units, driven by substantial drop-down opportunities from SemGroup (SEMG), attractive positioning in the Rockies area and attractive valuation vs. crude logistics peers," noted the analysts following the announcement.

"Trucking is a key component of crude oil transportation, serving as a mobile extension of fixed pipeline gathering systems," said Norm Szydlowski, CEO of Rose Rock Midstream's general partner in a statement.

Approximately 140 employees of Barcas Field Services will join Rose Rock at the close of the transaction expected during the third quarter of 2013.

Keyera, Kinder Morgan to construct Alberta Crude Terminal

Keyera Corp. and Kinder Morgan Energy Partners LP have formed a 50-50 joint venture to build a crude oil rail loading facility in Edmonton, Alberta, Canada, called the Alberta Crude Terminal. When complete, the Alberta Crude Terminal will be able to accept crude oil streams handled at Kinder Morgan's Edmonton Terminal for loading and delivery via rail to refineries anywhere in North America.

The Alberta Crude Terminal will be constructed next to Keyera's Alberta Diluent Terminal on land recently acquired by a Keyera subsidiary. Keyera will operate the Alberta Crude Terminal, which will have 20 loading spots capable of loading approximately 40,000 barrels per day of crude oil into tank cars and will be served by both the Canadian National Railway and the Canadian Pacific Railway.

The location is very well situated to provide this service, as the Edmonton area is western Canada's primary oil hub where Alberta crude oil is aggregated before being delivered to markets across North America. In addition to the construction of the Alberta Crude Terminal, Kinder Morgan and Keyera are independently planning modifications to their respective facilities in the Edmonton area to facilitate delivery of crude oil to the Alberta Crude Terminal.

Kinder Morgan is proposing to construct a 16-inch pipeline to connect its North 40 Edmonton Terminal to Keyera's Edmonton Terminal. Keyera plans to construct a new 16-inch crude oil pipeline across its Edmonton Terminal to join to the existing Alberta Diluent Terminal connector pipeline and install additional pumping capacity. In conjunction with this project, Keyera is also proposing to construct a new 12-inch condensate pipeline connecting the Alberta Diluent Terminal to Keyera's Fort Saskatchewan Pipeline System.

Engineering work is underway and commissioning of the new terminal is targeted for the second quarter of 2014.

Keyera's share of the cost of the Alberta Crude Terminal, as well as the land purchase, pipeline construction and other facility modifications, are expected to be approximately $65 million. Kinder Morgan's share of the cost of the Alberta Crude Terminal, including modifications to the Edmonton North 40 terminal and connections to Keyera, is expected to be approximately $33 million.

EVEP opens Utica East Ohio midstream facilities

EV Energy Partners has opened the Utica East Ohio (UEO) midstream facilities, which started processing gas in July. The facility is processing more than 85 million cubic feet per day (MMcf/d) of wet gas, has a capacity of 200 MMcf/d, and throughput is expected to increase steadily as additional wells are turned in line. With UEO and other processing facilities now available, more Utica wells are being turned in line, which is increasing the flow of gas through the Cardinal Gas gathering system. Increased volumes and cash flow are anticipated for the rest of this year and into 2014.

Meritage acquires Thunder Creek from Devon, PVR Partners

Meritage Midstream Services II LLC has acquired 100% ownership of Thunder Creek Gas Services LLC from Devon Energy Corp. and PVR Partners LP.

Thunder Creek owns and operates natural gas gathering, treating and processing assets in Wyoming's Powder River Basin, including more than 500 miles of high- and low-pressure gas gathering pipelines, three natural gas treating facilities, compression and gas processing facilities, and various NGL and condensate handling facilities.

Meritage is also developing the Black Thunder Terminal, a joint venture with Arch Coal. Located in Campbell County, Wyoming, at Arch Coal's Black Thunder mining complex, the terminal will provide storage, blending and rail loading services for crude oil and condensate produced in the Powder River Basin. Meritage expects to expand the Thunder Creek gathering system to provide pipeline service to the terminal. Meritage is backed by initial equity commitments of up to $500 million from Riverstone Holdings LLC.Evercore Partners acted as sole financial advisor and Vinson & Elkins served as legal advisor to Meritage.


Infrastructure expansions easing crude price distortions

While crude oil supply in the Midcontinent continues to increase, North American infrastructure expansions are easing crude price distortions, according to Ernst & Young Oil & Gas Center's US quarterly outlook. New pipeline construction, reversals and repurposing, along with a surge in new crude-by-rail capacity and shipments, have relieved much of the logistical pressures that caused crudes like WTI to be substantially undervalued in relation to comparable global crudes.

While generally more costly than pipelines, rail provides flexibility and optionality for both producers and refiners – allowing producers to access higher-value markets that are often inaccessible by pipeline, and allowing refiners to source the most cost-effective feedstocks.

ENGlobal secures Utica east midstream contract

ENGlobal Corp. has secured a $5 million engineering and procurement support contract from Utica East Ohio Midstream LLC (UEO) for a cryogenic gas processing plant in Leesville in southwestern Carroll County, Ohio.

The Leesville plant will recover NGLs in the liquids-rich Utica shale play.

UEO is a joint venture of M3 Ohio Gathering LLC, Access Midstream Partners LP, and EV Energy Partners LP.

Work is expected to start immediately with project completion anticipated in 2Q14.