The Eagle Ford Shale play spans 400 miles from the Mexican border up into some eastern Texas counties. The source rock in South Texas – where most of the development activity is occurring -- has different maturity levels, with three distinct area development windows for oil, condensate, and dry gas corresponding to the shallow, intermediate, and deeper parts of the play, respectively. For the short term, activity has slowed somewhat in the dry gas zone in favor of development in the condensate-rich part and the eastern part of the oil zone, primarily due to the returns that producers can realize for oil and liquids relative to their dry natural gas counterpart. This trend is expected to continue with the current overall US natural gas supply/demand balance forecasts and resultant forward gas price path. In some areas, value from condensate produced along with natural gas is helping those overall economics and is keeping development gas efforts on track, but in general, the true gas-only development potential must await more favorable market conditions.

In mid-2010, the upstream development of the liquid-rich portion of the Eagle Ford play took off, with the epicenter in Karnes and Gonzales Counties. Following the successes in those two counties, operators concentrated their efforts on the liquid-rich portions along the so-called geological border between the condensate and oil zones located in Dimmit, La Salle, McMullen, and Live Oak Counties. Since March 2011, activity has also increased in Frio, Atascosa, and Zavala Counties, which lie exclusively within the oil zone. Some of the larger operators in the Eagle Ford play are Anadarko, Apache Corp., Chesapeake Energy, ConocoPhillips, EOG Resources, Forest Oil, Marathon, Newfield Exploration, BHP Billiton Petroleum, Pioneer Natural Resources, Rosetta Resources, Shell Western E&P, and SM Energy. Many of these producers have made contract commitments to anchor new regional midstream infrastructure projects to support their short-term and long-term development needs.

Eagle Ford midstream infrastructure

Development efforts in the Eagle Ford Shale areas continue to ratchet upward, providing ample need for use of existing area midstream facilities as well as triggering significant new midstream infrastructure needs. With crude oil, condensate, associated (i.e., hydrocarbon-rich) gas, and traditional dry gas all present in the developing product mix, numerous projects are being implemented to provide needed gathering capacity and access to downstream markets. In many cases, truck and rail services are currently providing for interim movement of crude oil and/or condensate production until near-term and longer term pipeline infrastructure becomes available. Existing natural gas facilities are being used where possible to manage any gas production until long-term arrangements can be implemented. Looking ahead, many of today’s short-term infrastructure constraints for liquids, gas liquids, and gas will be eliminated by mid-2013, and operators should then be able to receive full value for the majority of their products.

Natural gas gathering systems implemented by producers to support their initial well development programs have connected where possible into existing area pipeline infrastructure until longer term infrastructure is in-place to provide maximum recoverable value. In some cases, pipeline operators have been encouraged to convert existing gas systems from their traditional dry gas service mode to perform future rich gas or condensate service. The multifaceted impact of the Eagle Ford Shale development is so significant that the entire South Texas gas pipeline, NGL pipeline, and crude oil pipeline networks will be transformed into a new mode of future operations.

Crude oil/condensate pipelines

As a result of significant discoveries in the oil- and condensate-rich portions of the play, existing crude oil pipeline infrastructure was determined to need major modification and/or expansion. Significant also was the need for these products to be gathered and aggregated and thus able to reach definitive points of further distribution or direct access to markets. Many of these projects involve new infrastructure to gather crude either into existing area pipeline infrastructure or into new or expanded infrastructure. As such, a number of differing pipeline and terminal projects are under way to meet these requirements.

Valero Energy and Harvest Pipeline are building a crude oil pipeline from Atascosa and Live Oak counties to connect directly to Valero's existing Three Rivers refinery; the pipeline is expected to be in service by December 2011. Valero’s refinery has been using primarily foreign (imported) crude in the past; Eagle Ford crude is already beginning to replace such and most likely will become the principal crude source. Total refinery capacity, post-expansion, is 100,000 bbl/d. Initial capacity of the new gathering pipeline will be 50,000 bbl/d with expansion capability to 70,000 bbl/d.

El Paso Midstream Energy Partners (EPM), as a part of its proposed Camino Real pipeline concept, is operating 70 miles of crude oil gathering facilities in LaSalle County. Capacity of the facilities is 80,000 bbl/d; two oil terminals will provide truck-loading capabilities, and the system also can provide for on-lease loading. Currently under construction, service is anticipated in fall 2011. Connections to other oil pipelines in the area will be driven by customer requests.

A crude oil storage and transportation hub is developing in the vicinity of Gardendale in LaSalle County. A large number and variety of projects have been proposed in the area, and several have reached commitment and/or construction stage. These facilities include crude oil gathering pipelines, truck and rail terminals, local storage, and an export pipeline and storage terminal at Corpus Christi. An additional pipeline will connect the Gardendale Hub to a terminal at Three Rivers, where existing crude oil pipelines currently route to Corpus Christi as well. These projects are highlighted in Table 1.

Separately, anchor shipper Anadarko Petroleum has completed long-term arrangements with Harvest Pipeline to extend the existing Arrowhead crude pipeline system to Cotulla in LaSalle County. This new 12-in. pipeline will have initial capacity of 50,000 bbl/d and ultimate capacity of 90,000 bbl/d. From Cotulla, the crude will route via a joint Koch Pipeline/Arrowhead tariff to Corpus Christi via either a reactivated NuStar crude pipeline, wherein Koch has leased 30,0000 bbl/d of capacity, or via the existing and/or expanded Koch Pettus-to-Corpus Christi Pipeline system.

Koch Pipeline Company LP, the largest crude oil pipeline operator in south Texas, has an existing crude oil pipeline from Corpus Christi to Pettus. For 2011, Koch reported that it had various projects which added more than 140,000 bbl/d to its South Texas crude oil gathering capability. In response to continuing area need, Koch Pipeline will expand its Pettus-to-Corpus Christi pipeline to move an additional 120,000 bbl/d of Eagle Ford crude oil by late 2012. On the Corpus Christi end, Koch is also building a new pipeline from Corpus Christi to its affiliate Flint Hills Resources' Ingleside waterborne terminal to increase its capability. Service is expected to begin by mid-2012. The completion of the Ingleside pipeline is timed with Flint Hills Resources’ upgrades to the its marine terminal that will have the capacity to ship via barge up to 200,000 bbl/d of liquids to other Gulf Coast markets.

Enterprise Products Partners is currently one of the largest midstream infrastructure players in South Texas. To date, its principal involvement has been in the natural gas gathering, processing, and NGLs business. With a significant oil play developing in the Eagle Ford, Enterprise decided to enter that arena in a big way. Phase 1 of its Eagle Ford Crude Oil pipeline will consist of 143 miles of 24-in. pipeline from Wilson County to existing crude facilities near Sealy. Completion is expected by mid-2012 with a capacity of 360,000 bbl/d. This project would also include a pump station expansion on the existing Rancho Pipeline at Katy and an additional 2.2 million bbl/d of crude storage capacity at Sealy. This project also includes 95 miles of crude oil gathering pipelines along its route to gather crude oil into the system as well as several truck loading terminals.

Phase 2 of the project would originate at the southern terminus of the Phase 1 segment and extend further to the southwest to a site near Gardendale. At Gardendale, a developing crude/condensate aggregation point, Enterprise also has planned 500,000 barrels of storage. Whereas other facilities at Gardendale are being implemented to transport crude oil into the Corpus Christi area to access markets there, Enterprise would route a portion of the area’s crude/condensate to Houston Ship Channel markets. The Phase I project will begin service by the second quarter of 2012; Phase 2 is set to commence service in the first quarter of 2013. Table 2 provides detail on the numerous crude oil implementations proposed by Enterprise.

Plains All American Pipeline LP announced that it has entered into a commitment to construct a new 130-mile crude oil and condensate pipeline from the western portion of the Eagle Ford play and a marine terminal facility in Corpus Christi with 1.5 million barrels of storage capacity. Chesapeake Energy Marketing Inc. will be the anchor shipper for the project. Chesapeake and Koch affiliate Flint Hills Resources, which operates a 300,000-bbl/d refinery complex in Corpus Christi, both have options to participate in ownership. The project is expected to be in service in the fourth quarter of 2012 with up to 300,000 bbl/d of capacity.

As a part of its purchase of a 25% interest in Petrohawk Energy’s natural gas gathering and treating business in the Eagle Ford area, Kinder Morgan Energy Partners agreed to provide to provide a 300,000-bbl/d crude/condensate pipeline from the Eagle Ford area directly to the Houston Ship Channel markets. To accommodate this, Kinder Morgan proposes to build 61 miles of new pipeline to the Black Hawk field near Cuero and would agree to convert 109 miles of existing Kinder Morgan Texas gas pipeline to the Deer Park area of the Houston Ship Channel from natural gas service to liquids service. Initial deliveries would be made to various terminals and facilities in the immediate Ship Channel area. The new pipeline and proposed modifications are proposed for service by mid-2012.

In the Eagle Ford gathering area, the Kinder Morgan/Petrohawk (now BHP Billiton) joint venture will be operating more than 280 miles of natural gas gathering assets and approximately 112 miles of condensate gathering assets by year-end 2011.

NuStar Logistics LP and TexStar Midstream Services LP have announced their intent for TexStar to build and operate a new 65-mile, 12-in. pipeline for gathering up to 120,000 bbl/d of crude oil and condensate from Frio County and routing to NuStar’s existing crude oil terminal at Three Rivers. This system would handle both sweet and sour crude as well as condensate. TexStar will also operate at least two truck loading facilities along the route to receive additional crude. At Three Rivers, connection would be made to NuStar's existing 16-in. crude oil line into Corpus Christi, which will have an ultimate delivery capacity of 200,000 bbl/d. Implementation is expected in mid-2012.

Crude – trucking and rail

Republic Gathering & Marketing LLC announced that it has signed an exclusive joint venture agreement with Palletized Trucking to effectively transport crude out of the Eagle Ford Shale and reliably bring it to market. Republic expects to purchase and transport 600,000 barrels per month by the end of 2011.

US Development Group’s "Gardendale/Eagle Ford Crude Terminal" is nearing completion. Located near Cotulla on Union Pacific Railroad’s main line between Laredo and San Antonio, the terminal is designed to handle crude oil, condensate, and other related products. The terminal, which is located 80 miles south of San Antonio, should be completed in July. Eagle Ford Shale producers in this area – who currently do not have access to crude oil pipelines -- will be able to ship their products via rail and truck and, later, by pipeline. The terminal’s rail operations will have the maximum capacity of 40,000 bbl/d. A primary market for the exported crude to date has been USD’s crude terminal in St James, La; other Gulf Coast refining and chemical companies can be accessed as well.

EOG Resources has advised that it is using a crude-by-rail facility to export crude prior to long-term pipeline availability. The facility is currently transporting 4,000 bbl/d (1Q, 2011) and is expected to be moving 20,000 bbl/d of Eagle Ford oil by rail by year-end 2011. EOG advises that the concept is the same as its highly successful Bakken crude-by-rail program, where it is moving an average of 40,000 bbl/d

Rich natural gas transportation, natural gas processing, and NGL-related facilities

As in the crude oil transportation sector, there are a number of unique regional projects for gathering and processing Eagle Ford natural gas and handling related NGL products. In general, project proposals are of two types: first, where the rich natural gas streams are integrated into relatively proximate existing and/or expanded South Texas gas and liquids infrastructure and, second, where gas volumes are routed to distant plants and thus may precipitate infrastructure expansions en route. In general, targeted NGL markets are along the Texas coast, as are the numerous NGL fractionators and storage. The largest market and significant fractionation and storage capability exists at the NGL trading Hub at Mont Belvieu at the Houston Ship Channel.

Via an additional 58-mile, 24-in. pipeline, Copano Energy will connect its existing 38-mile, 24-in. DeWitt-Karnes (DK) Pipeline to its Houston Central Plant. The pipeline extension will increase the capacity of the DK gathering system from 225 MMcf/d per day to 350 MMcf/d per day and is expected to begin service in the fourth quarter of 2011. Copano has announced it will expand its processing capability by 400 MMcf/d to a total of 1.1 Bcf/d, and it will restart its local NGL fractionator with a capacity of 22,000 bbl/d of NGL products. NGL products will be delivered into existing liquids pipelines connecting to the Houston Central plant. Start-up of the new processing plant in early 2013 will coincide with Copano's agreement to enter into a long-term contractual arrangement with Formosa Hydrocarbons at Point Comfort, where Formosa would provide to Copano gas processing capacity for 200 MMcf/d and additional fractionation capability.

Kinder Morgan Energy Partners (KM) and Copano Energy LLC have entered into a multi-faceted joint venture arrangement that provides for gathering of upstream gas from producers and routing it via new and existing pipeline facilities to Copano's Houston Central gas processing plant near Sheridan and to two other area processing plants where Copano has contracted for added capability and flexibility. The joint venture, Eagle Ford Gathering LLC (EFG), will contract for all of the transportation capacity and the various processing plant and fractionation capacities and will be able to offer a full-service, bundled option to its customers. Contracting for all of the capacity also provides a significant degree of flexibility for EFG as to how and where it has the gas processed or fractionated.

After conversion of a portion of the KM Texas Laredo-to-Katy pipeline from dry gas to rich gas service, the modified gas transportation system will provide the ability to transport up to 600 MMcf/d of Eagle Ford gas, with 375 MMcf/d routed northward to the Houston Central plant and another 225 MMcf/d routed eastward to the KM Tejas Agua Dulce-to-Markham pipeline, a portion of which will also be converted from dry gas to rich gas service. Utilizing the modified portion of the KM Tejas system, rich gas can be routed to Williams Partners’ Markham processing plant (capacity of 100 MMcf/d and an option for up to 200 MMcf/d) or to Formosa Hydrocarbons’ processing and fractionation plant (200 MMcf/d). The nearby Formosa Plastics plant is also a consuming market for NGLs. Table 3 provides a listing of the numerous facilities required to put this joint venture arrangement into play.

In the Eagle Ford area, DCP Midstream is developing an integrated project that will provide gathering, processing, fractionation, and marketing services for numerous producers, including ConocoPhillips, Enduring Resources, Murphy Oil, BHP Billiton, Riley Exploration, and the Pioneer JV, a joint venture arrangement between Pioneer Natural Resources, Reliance Eagle Ford Upstream Holding LP, and Newpek LLC (collectively, the Pioneer JV). DCP will be constructing 130 miles of pipelines to integrate these producers and others into their arrangement. Providing the central trunk for this system will be a 165-mile portion of Trunkline Gas' existing interstate gas pipeline system, which will be converted to rich gas service. DCP's five existing area gas processing plants have capacity currently available to process up to 250 MMcf/d of Eagle Ford gas. DCP would also add a sixth plant, the Eagle Processing Plant, with 200 MMcf/d of added capacity, which is expected to be in service by late 2012. Total processing capability in the region for DCP would be approximately 1 Bcf/d. NGLs would be routed either through DCP NGL pipelines in the area already connected to existing plants or via the proposed Sand Hills NGL pipeline described below.

Combining NGL pipeline growth needs in the Permian Basin area with those of its facilities in the Eagle Ford area, DCP Sand Hills Pipeline is a proposed new 700-mile y-grade NGL pipeline from various DCP and Targa Resources Partners plants. DCP is currently seeking to secure transportation commitments from interested parties, with a proposed mid-2013 implementation and a target capacity of 120,000 bbl/d. Targa Resources Partners would propose to expand its fractionators at its Cedar Bayou/Mont Belvieu facilities by 100,000 bbl/d to provide NGL fractionation and as well as storage services. This expansion would bring the total fractionation capacity at the Cedar Bayou facilities to 393,000 bbl/d.

Table 4 provides a listing of these various DCP facilities.

Energy Transfer Partners LP (ETP) is another company that has offered a variety of infrastructure solutions for Eagle Ford producers. In late 2010 ETP began providing gathering and processing services for Eagle Ford shippers via a new 50-mile, 350 MMcf/d Dos Hermanos Pipeline originating in Webb County and routing to a connection with ETP’s existing Houston Pipeline (HPL) system. This action has facilitated immediate processing capability of limited volumes at ExxonMobil’s King Ranch processing plant, where resultant products could be managed within existing natural gas and NGL facilities already available there. A second project scheduled for mid-2011 implementation provided for ETP to build an 83-mile pipeline from Dewitt County to ETC’s existing LaGrange processing plant where, once again, existing natural gas and NGL facilities were already in place to manage product output. Initial capacity of this pipeline is 100 MMcf/d with the ability to increase to 300 MMcf/d.

Expanding upon these arrangements, ETP announced it will construct a major natural gas gathering pipeline, a large processing plant, and additional facilities. Supported by contracts with Rosetta Resources, SM Energy, and Anadarko, the 160-mile, 30-in. Rich Eagle Ford Mainline (REM) will have a capacity of 400 MMcf/d with the ability to expand to 800 MMcf/d. This rich gas gathering system, expected to be in service by the fourth quarter of 2011, will originate in Dimmitt County and extend to the new Chisholm Pipeline, providing deliveries to ETP’s existing LaGrange processing plant and/or to a new 600 MMcf/d processing plant to be located in Jackson County.

This new processing facility would be operative by early 2013. Supporting the new Jackson County plant, ETP announced that it will build a 130-mile NGL pipeline to Mont Belvieu, where Lone Star NGL LLC, a joint venture between ETP and Regency Energy Partners, will construct a new 100,000 bbl/d fractionator at Mont Belvieu and additional y-grade storage facilities to complement its existing 43 million barrels of NGL storage capacity. These facilities will all be in service by early 2013.

Regency Energy Partners will provide NGL to the pipeline project as well.

Finally, with intent to provide synergies to this developing network of NGL facilities, Lone Star NGL LLC will collect y-grade volumes in West Texas and build a 530-mile NGL pipeline from Winkler County to the Jackson County plant to access the Lone Star NGL pipeline to Mont Belvieu. Thus, NGL y-grade from plants in the Permian Basin can be routed eastward and be integrated with y-grade from the new Jackson County processing plant, with all NGLs routed to Mont Belvieu for fractionation and storage.

Enterprise Products Partners operates the largest and most extensive gas gathering and processing operation in South Texas, with seven existing plants and the ability to process up to 1.5 Bcf/d. To facilitate providing additional services for Eagle Ford producers, Enterprise proposed a number of projects that would enhance its existing capabilities as well as provide for future services. These projects included the expansion of its gathering capabilities in several individual play development areas (2011) ; extension of its mainline 30 miles west to reach deeper into the Eagle Ford rich gas play (2011) ; implementation of the White Kitchen pipeline, a 46.5-mile gathering lateral from White Kitchen to Catarina (late 2011); 86 miles of gas pipeline connecting Enterprise’s existing Shoup plant to its Schilling plant (late 2011); and expansion of its mainline from White Kitchen (late 2011) to a proposed 600 MMcf/d Eagle Ford processing plant at Yoakum (early 2012).

Other projects include implementation of NGL and residue gas handling capabilities at the new Yoakum Plant, including 116 miles of pipeline to provide y-grade storage at existing Enterprise storage facilities at Seminole and a 70-mile residue (dry) gas pipeline to Enterprise’s Wilson gas storage and to provide for overall gas market access via the Enterprise Texas pipeline system (late 2011). Finally, to support these upstream enhancements, two new 75,000 bbl/d fractionators would be added at Mont Belvieu, the first scheduled for service in 2012 and the second in 2013. As upstream volumes ramp-up over time, Enterprise will implement compression along its mainline to facilitate throughput. Table 5 provides detail on the various EPP projects.

Regency Energy Partners is expanding its gas and condensate gathering capabilities in the Eagle Ford area. As a part of the project, Regency has purchased other area midstream assets which will be integrated with its existing system. The so-called EF expansion will include a 400-mile wellhead gathering system in Webb, Dimmit, and LaSalle Counties; compression; and the implementation of four gas and condensate export terminals. The condensate terminals have a capacity of 26,500 bbl/d. The EF expansion will occur through 2014 as required by upstream parties. Separately, Regency announced an expansion of its Tilden treating plant in McMullen County by 20 MMcf/d. The Tilden plant treats sour gas associated with some of the Eagle Ford gas production.

Southcross Energy will provide natural gas gathering, transportation, and processing services for Swift Energy's Eagle Ford supply developments in McMullen County. Southcross will construct a 25-mile, 20-in. pipeline along with smaller gathering lines. Expected to be in service in mid-2011, the pipeline system will have a capacity of 120 MMcf/d and extend via Southcross’ existing rich gas pipeline system to its processing plant near Gregory. Southcross will enhance the operating efficiency of its Gregory plant, increasing its capacity to 135 MMcf/d. Southcross has also advised that it will further increase its ability to process Eagle Ford gas by implementing a new 200 MMcf/d gas processing plant in Refugio County; construction should be completed by mid-2012.

Gas gathering/residue gas delivery

The capacity of El Paso Midstream’s (EPM) Camino Real gas gathering system in LaSalle County is 150 MMcf/d. The system is scheduled to be in service by summer 2011 and will gather rich gas volumes for El Paso production as well as third parties. Deliveries will be into other rich gas systems in the immediate area, and processing arrangements will be made on the downstream pipelines/plant.

Meritage Midstream Services is building 25 miles of gathering pipeline in Webb County and will provide treating service to Swift Energy and others. The new pipeline will connect to Meritage's existing South Callahan treating facility – which Meritage will expand -- and to its existing Escondido gas gathering system. Separately, Meritage has also entered into an agreement with Laredo Energy to build a 48-mile, 16-in. pipeline to provide market access for Eagle Ford producers.

NET Holdings Management LLC recently announced that it would provide dry gas transportation for Murphy Exploration & Production. Eagle Ford Midstream LP will build a 110-mile gas pipeline to the vicinity of Tilden, where it will connect to NET’s existing LaSalle Pipeline as well as to Transco Pipeline’s McMullen lateral. LaSalle Pipeline provides the full fuel-gas requirements for a 200 MW electric generation facility. A planned second phase of the project would provide for deliveries at the Agua Dulce Hub near Corpus Christi.

Numerous existing interstate and intrastate gas pipeline companies in south Texas will be providing transportation of dry gas volumes from the Eagle Ford areas to the extent their facilities are proximate to development. As many of the existing gas processing plants already connect to many of these pipeline systems, residue gas from those plants will continue to flow into these facilities.

The Kinder Morgan intrastate pipelines – KM Texas and KM Tejas -- have converted a significant portion of their existing south Texas area facilities from traditional dry gas service to rich gas service. Thus, dry gas deliveries into these pipes in locations upstream of their downstream processing plant arrangements will probably be minimized. However, Kinder Morgan advises that its ability to continue to provide delivery service to downstream markets will remain strong as it will continue to receive dry gas volumes and volumes from its Markham storage facilities via facilities which remain in dry gas service.

Similarly, Trunkline Gas’ South Texas interstate pipeline facilities upstream of Edna will also be converted to rich gas service. Thus, dry gas deliveries into these pipes in locations upstream of their downstream processing plant arrangements will probably be minimized. With DCP Midstream contracting for the converted Trunkline capacity and operating its plants and its facilities on an integrated basis for rich gas service, DCP plants, post-processing, should continue to make deliveries into other south Texas area connecting pipelines.

As one can see from the many infrastructure actions, the south Texas liquids transportation and natural gas transportation grids have been transformed significantly by the Eagle Ford development efforts. Billions of dollars have been committed to new projects, and many existing facilities will also see continuous use. Midstream infrastructure players have announced a wide variety of solutions, ensuring that Eagle Ford Shale development can reach its maximum potential.