MIDSTREAM NEWS
Crude-by-rail facility loads 1,000th unit train
On August 21, 2014, Denver-based midstream energy company BOE Midstream (BOE) loaded and shipped the 1,000th unit train from its Bakken Oil Express Rail Terminal in Dickinson, ND. The Denver, CO-based crude-by-rail facility has moved roughly 70 million barrels of crude oil. BOE also owns LL Terminals LLC; BOE South and BOE Pipeline LLC. Company operations began on November 3, 2011. The facility is capable of loading up to three unit trains per day, with the ability to simultaneously load two unit trains and stage multiple trains on site. Currently, it offers crude oil operational storage capacity of 642,000 barrels, which will increase to nearly 892,000 barrels with a new storage tank projected to be online by mid-2015.
US crude oil exports and re-exports continue to rise
US crude oil exports are rising and recently reached their second highest monthly level since 1920, noted an October 30 brief from The US Energy Information Administration.
The US exported 401,000 bbl/d of crude oil in July 2014, the highest level of exports in 57 years and the second highest monthly export volume since 1920, when EIA's published data starts. Recent crude oil exports are also noteworthy for both their origins and destinations. As a result of existing US crude oil export restrictions, most US crude exports are sourced domestically and are sent only to Canada. However, since April, crude exports have included modest amounts of Canadian-produced barrels that were moved through the United States and then re-exported to Switzerland, Spain, Italy, and Singapore.
To export crude oil from the US, a company must obtain a license from the Bureau of Industry and Security (BIS) of the US Department of Commerce. Under export licensing requirements, there are certain transactions that will generally be approved. Licenses for other exports of US-origin crude are considered on a case-by-case basis. For such other exports, the regulations describe the characteristics of transactions that will generally be approved as in the national interest.
The recent shipments to Switzerland, Spain, Singapore, and Italy were small volumes of permitted re-exports of Canadian crude oil that were not commingled with US-produced barrels. As is the case in the US, some of the growth in Canada's crude oil production is taking place in areas with limited infrastructure to bring the crude to refineries for processing. With limited pipeline and rail takeaway capacity, some Canadian producers are testing the economic viability of moving crude oil to the Gulf Coast for re-export to other markets.
It is unclear if this recent trend of Canadian re-exports from the Gulf Coast will continue, and if so, for how long. Several proposed Canadian pipeline projects may provide producers with alternative routes for delivering crude to markets beyond North America, but the timing of each of them is uncertain.
Western Gas Partners to acquire Nuevo Midstream
Nuevo Midstream LLC and Nuevo's private equity backer, EnCap Flatrock Midstream (EFM), report that Western Gas Partners LP will acquire Nuevo for $1.5 billion in cash. Western Gas is a growth-oriented master limited partnership formed by Anadarko Petroleum to own, operate, acquire, and develop midstream energy assets. The acquisition plan is credit-neutral in the near term while providing geographic diversification and organic growth opportunities in the longer term, said Fitch Ratings.
"Nuevo is a Delaware Basin gas gatherer and processor with approximately 70% fee-based gross margin. The acquisition continues WES' strategy of pursuing fee-based opportunities for growth. Management expects that post-transaction over 95% of consolidated gross margin will be fee-based or covered under fixed price arrangements with Anadarko Petroleum Corp. (APC)," said the agency.
WES will partially fund the transaction with $750 million in Class C units issued back to APC, which will receive PIK distributions through 2017 when they are expected to convert 1:1 to common, said analysts at Baird Equity Research.
APC has a joint venture arrangement with a third party which gives the third party the right to acquire a 50% interest in Nuevo. WES is prepared to purchase 100% of Nuevo if the third party does not elect to participate. As of Sept. 30, WES had $1 billion available under its revolving credit facility.
Fitch anticipates that the transaction will not have a detrimental impact on leverage and credit quality for WES, even in the event of long-term debt funding for the remaining 50% of the purchase price. The rating outlook for WES remains positive.
Equity commitments to Nuevo ultimately reached more than $300 million from a group of investors led by EFM Funds I and II, management and Wells Fargo Energy Capital. Barclays is serving as sole financial advisor to Nuevo. Vinson & Elkins LLP is acting as the company's legal advisor. Thompson & Knight LLP serves as legal counsel to EnCap Flatrock Midstream. Akin Gump Strauss Hauer & Feld LLP is legal advisor to Western Gas.
Bentek: US ethane exports 'imminent' as supply grows
US ethane production, forecast to reach 2.5 million barrels per day (b/d) by 2024, will cause supply to exceed domestic demand, making exports "imminent," according to a report from Bentek Energy, an analytics and forecasting unit of Platts. The forecast 2024 level is twice that of the 1.2 million b/d produced in in 2013, according to a new report by Bentek. "While domestic ethane demand will rise by about by about 0.8 million b/d to 1.8 million b/d in 2024, production will grow much faster," said Jennifer Van Dinter, Bentek analyst and co-author of the report. "This dynamic will dramatically change the local and global nature of the ethane market, similar to what we've seen with surging North American oil and natural gas production." Ethane producion in the Marcellus and Utica could rise from zero in 2012 to 590,000 b/d by the end of the decade, the report noted. As a result, domestic petrochemicals companies will have more than enough ethane and other natural gas liquids (NGLs) to keep their plants running, prompting the industry to prepare for exports as early as next year. Several US-based companies have confirmed plans to build waterborne export terminals, and ethylene producers in Europe and Asia have signed contracts to supply their steam crackers with low-priced, US-sourced ethane.
Velocity Midstream Partners to construct SCOOP facilities
Velocity Midstream Partners LLC reports that Velocity Central Oklahoma Pipeline LLC, a wholly owned subsidiary of Velocity, will construct a crude oil gathering and transportation system in the fairway of the prolific SCOOP play in central Oklahoma. Continental Resources Inc. has executed an agreement to be the customer of the system. Continental is a dominant leaseholder in the SCOOP area, with approximately 471,000 net acres. Velocity's system will gather crude oil from points designated by Continental Resources in Grady, Stephens, Garvin, and McClain counties, and will provide transportation and interconnections to downstream pipelines with direct access to Cushing, Oklahoma. The crude oil pipeline and terminals are under construction and will be placed into service early second quarter of 2015. This is the first phase of Velocity's infrastructure development plans to serve producers involved in the Woodford and Springer shale plays underlying the SCOOP play.
CorEnergy acquires MoGas Pipeline
CorEnergy Infrastructure Trust Inc. has closed its acquisition of the ownership and operations of the MoGas Pipeline System for $125 million in cash. In connection with the consummation of the acquisition, the company has entered into a newly amended revolving credit facility with borrowing capacity of up to $93 million in aggregate. The MoGas Pipeline System is a 263-mile interstate natural gas pipeline system which originates in northeast Missouri, and extends into western Illinois and central Missouri. The pipeline maintains receipt points with Mississippi River Transmission Corporation in eastern St. Louis and with Panhandle Eastern Pipe Line Company and Rockies Express Pipeline on the northern end of the system. The acquisition price was funded with a combination of borrowings under the company's newly upsized credit facility and with proceeds from CorEnergy's public offering of common stock. The company has amended and upsized its existing $30 million revolving credit facility. The newly amended facility provides CorEnergy with borrowing commitments of $93 million, consisting of $90 million at the parent entity level and $3 million at the subsidiary entity level. At the parent entity level, the company has $32 million presently drawn against the credit facility, providing for $58 million of un-utilized borrowing capacity that is subject to a borrowing base. The credit facility has a maturity date of Nov. 24, 2018. BofA Merrill Lynch is acting as exclusive structuring advisor in connection with CorEnergy's energy infrastructure real asset strategy. Regions Capital Markets, a division or Regions Bank, and Merrill Lynch, Pierce, Fenner & Smith Inc. served as joint lead arrangers and joint bookrunners for the credit facility. Regions Bank will serve as administrative agent, and Bank of America NA will serve as syndication agent for the credit facility.
Phillips 66 Partners and Paradigm form midstream logistics JVs
Phillips 66 Partners LP and Paradigm Energy Partners LLC have executed agreements to form two joint ventures to develop midstream logistics infrastructure in North Dakota. Consisting of two previously announced projects, the Sacagawea Pipeline (the Pipeline JV) and Palermo Rail Terminal (the Rail JV), the joint ventures are designed to enhance logistical options for crude oil transportation in the Bakken region. The Pipeline JV will own an 88% ownership interest in Sacagawea Pipeline LLC, with the remaining 12% interest to be owned by Grey Wolf Midstream LLC. Additionally, the Pipeline JV will own and construct a crude oil storage terminal and central delivery point for various crude gathering systems located in Keene, North Dakota (the Paradigm CDP). The Sacagawea Pipeline project is a 76-mile pipeline being developed to deliver crude oil from various points in and around Johnson's Corner and the Paradigm CDP, located in McKenzie County, to destinations with takeaway options for both rail and pipeline in Palermo and Stanley, located in Mountrail County.
Under the terms of the Pipeline JV agreement, Phillips 66 Partners and Paradigm will each own a 50% interest in the joint venture and will fund their proportionate share of the construction costs. Paradigm will construct the pipeline and Phillips 66 Partners will be the operator.
The Rail JV will own the Palermo Rail Terminal. Located on a 710-acre site in Palermo, the crude oil rail-loading facility is designed to have an initial capacity of 100,000 bbl/d, with the flexibility to be expanded to 200,000 bbl/d. The terminal will have direct access to the Sacagawea Pipeline and provide East and West Coast rail access for third-party shippers through the BNSF railway.
Under the terms of the Rail JV agreement, Phillips 66 Partners will own between a 50% to 70% interest with Paradigm's ownership percentage subject to the achievement of certain milestones associated with the Pipeline JV. Final ownership interests will be determined before closing, and each party will fund their proportionate share of the construction costs. Phillips 66 Partners will construct and operate the rail terminal.
The transactions are expected to close in 4Q14 with total capital cost for the JVs estimated to be $300 million. Both the pipeline and rail terminal are expected to commence commercial operations in 1Q16.
Navitas updates on Eagle Ford agreement
Navitas Midstream Partners LLC has executed a long-term, fee-based agreement with an investment-grade independent producer to provide gathering and processing services in the northern Eagle Ford shale play in Brazos and Grimes counties, Texas. Navitas will construct the La Bahia system, which will consist of a 20-inch gathering line that will deliver gas from Brazos County to Navitas' natural gas processing plant to be located in Grimes County. When fully completed in mid-2015, the cryogenic processing plant will have a capacity of 120 million cubic feet per day.
Freeport approval moves US closer to LNG exports
In late November, the US Department of Energy (DOE) approved Freeport LNG's Expansion and liquefaction facility. Freeport and Cameron LNG (expected rating of A- with a Stable Rating Outlook, noted Fitch Ratings) have broken ground on export facilities and Sabine Pass is in advanced construction, moving the US closer to becoming a major exporter of LNG, said Fitch Ratings.
The DOE recently stopped reviewing non-Free Trade Agreement (FTA) export applications. Instead, it will only act on applications after the review required by the National Environmental Policy Act has been completed and suspend its practice of issuing conditional decisions prior to final authorization decisions. While Fitch believes this may quicken the pace of approvals, the actual timing and overall number of approvals remain unknown.