Major new pipeline projects, such as El Paso Corp.’s $3-billion Ruby Pipeline and its joint venture with Southern Union Co., the $2.4-billion Florida Gas Transmission Phase VIII line, will break ground this spring.
Also, new projects targeting Haynesville shale producers have been announced by Centerpoint Energy, FPL Group, Enterprise Products Partners LP and Regency Energy Partners LP.
This according to a fourth-quarter 2009 update from Tudor, Pickering, Holt & Co. analyst Becca Followill.
Meanwhile, recent inquiries about take-away potential in the Eagle Ford shale are early indicators of E & P successes there, according to the analyst. The Eagle Ford shale is still considered "new," so a key factor for green-lighting proposed projects will be assurance that projects will be executed on time and on budget (especially after the industry’s massive cost overruns on pipes during the last couple of years).
A significant piece of news is FERC’s decision to pull three pipeline companies in for Section 5s (rate reviews) for alleged over-earning.
"The market largely let it pass (as it should have), but there is still some lingering nervousness as to whether, once these reviews are done, FERC will go over another group," she writes.
On the gas-processing front, "fundamentals are fantastic." Fractionation spreads in fourth-quarter 2009 averaged $6.77 per million Btu, up about 24% from third-quarter 2009 and a rise of a hefty 442% year-on-year. Natural gas liquids prices averaged 55% of crude prices.
"The pricing is so good that processors are processing every thousand cubic foot of gas that has an iota of liquids," says Followill. "The market will be watching volumes closely—less eagle-eyed than last quarter, but still a lingering concern."
Meanwhile, integrated gas companies are seeing a gap between asset values and offer prices. Followill advises them to close the gap with an MLP dropdown strategy, although she admits there are "lots of ways to restructure and get higher value for assets," such as splits, mergers and selected asset sales.
"The strategy is viable again, after the 2008 downturn which sent MLPs’ cost of capital soaring and kept them from being viable acquirers. With MLP equity demand now high (from yield-hungry investors) and cost of capital low, dropdowns work again," according to the analyst.
Followill believes a key factor in MLP A & D strategies is whether companies have the interest, motivation and balance sheets to make it happen. The big question is: Who is next? Followill’s pick for the most likely candidate is Questar Corp.
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