Presentation on theme: "Natural Gas Processing Capacity in the Eagle Ford Shale"— Presentation transcript:
1 Natural Gas Processing Capacity in the Eagle Ford Shale AAPL Texas Land Institute September 11, 2012Houston, TXJosh WeberSenior Vice President, Commercial and Business Development
2 Forward-Looking Statement Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements.It is important to note that the actual results of company earnings could differ materially from those projected in such forward-looking statements.
3 AgendaHoward Energy Partners overviewLocation and timing of capacity additionsSelecting optimal plant locationsEfficiencies and economics of gas processingReducing lead time to plant in-servicePotential royalty considerations
4 Howard Energy Partners Overview Howard Midstream Energy Partners, LLC (“HEP”) is a private midstream company with operations primarily focused in the Eagle Ford ShaleFoundersMike Howard (Former President of Midstream for Energy Transfer Partners)Brad Bynum (Former CFO of Hall-Houston Exploration Partners)Company StrategyCustomer driven, asset oriented solutions to gathering and processing needs (engineering, construction, ownership and operations)Organic growth projects supplemented with strategic acquisitionsTop-tier management and technical capabilitiesLong-term focusAssetsStarted operations June 2011 concurrent with the acquisition of two private companiesTexas Pipeline (250 miles of rich gathering pipeline)Bottom Line Services (midstream energy services)Constructed 30 mile rich header in Dimmit County and put into service October 2011Completed acquisition of Meritage Midstream’s Eagle Ford and Cuervo Creek gathering systems in April 2012 (170 miles of rich and lean gathering pipeline)
7 Where Will New Infrastructure Be Available Where Will New Infrastructure Be Available? (New and Planned Processing Plants in Bold)
8 How have plants developed relative to production? Eagle Ford benefits by having existing infrastructure20082009201020112012
9 How have plants developed relative to production? Activity ramps up during 2010 and capacity additions planned20082009201020112012
10 How have plants developed relative to production? Significant expansion occurs in 2012 and beyond20082009201020112012
11 Selecting optimal plant locations Proximity to:Producing Area or P/L InfrastructureLiquids takeaway (P/L, Trucking, Injection Stations)Gas Residue P/L InfrastructureExpansion of existing plants should be explored
12 How much total capacity is being added? New and Planned Processing PlantsPlant NameEstimated StartupOwner/OperatorAnnouncedCapacity (MMcf/d)Yoakum Plant Phase 22012Enterprise300Chisholm PlantETC120Woodsboro PlantSouthcross Energy200Silver Oak PlantTeak MidstreamReveille Plant2013HEPHouston Central Phase 2Copano Field Services LLC400Karnes County PlantEagle PlantDCP MidstreamFlag City PlantBoardwalk Field Services150Jackson County Phase 1600Yoakum Plant Phase 3Brasada PlantWestern Gas PartnersHouston Central Phase 32014Jackson County Phase 2Jackson County Phase 3 TOTAL3,870
13 Historical Conventional South Texas Gas Analysis Lower GPMPrior to the Eagle Ford, most conventional S. Texas gas had fewer NGLs per cubic footPlants already in place were designed to handle gas in the 2-4 GPM rangeRicher gas was small volumes associated with oil wellsTotal GPM – 3.681173 Btu/CF
14 Older plant technologies still add value Although not as much attributed to ethaneAssumed component recoveries50% C295% C395% C4+Estimated fuel usage of 3.25%Nymex price of $2.75/MMBtu with a ($0.05) basis differentialCurrent OPIS NGL pricing for August$4.91/Mcf$1.75/Mcf*$3.17/Mcf* Margin does not include processing, transportation, or fractionation fees
15 Source: Tudor Pickering Holt , EIA Shift in NGL Barrel Composition“Typical” Barrel has become lighter over the past decadeEnhanced ethane recoveries most significant contributor to lighter barrelShale gas tends to contain higher ethane percentagesLighter products (ethane and propane) are not as linked to crude prices and exhibit greater volatilityEthane dependent on petrochemical demand and rejection capabilities can be limitedSource: Tudor Pickering Holt , EIA
16 Typical Eagle Ford Gas Analysis Higher GPM, Increased Ethane ContributionEagle Ford wet gas is richer than historical S. Texas gasHowever, an increased portion of the gas stream is derived from ethaneGPM for Eagle Ford gas ranges from 5.0 to 7.0Total GPM – 5.541251 Btu/CF
17 Processing creates significant value Especially when utilizing efficient cryogenic processingAssumed component recoveries90% C298% C3100% C4+Estimated fuel usage of 1.75%Nymex price of $2.75/MMBtu with a ($0.05) basis differentialCurrent OPIS NGL pricing for August$6.30/Mcf$2.92/Mcf*$3.38/Mcf* Margin does not include processing, transportation, or fractionation fees
18 How can I develop capacity faster? Streamline the in-house processPay vendors for expedited equipment deliveriesCan be costlyConsider using rental compression vs. purchasedFind ways to develop project in phasesLimit equipment specificationsStay as close as possible to base packagesOffer performance bonuses for early deliveryFabricate in the shop as opposed to the fieldTake some risk and obtain a plant and compression early!
19 Or, look for existing capacity on the market And we happen to know where to find some of it…200 MMcfd cryogenic processing plantExpected operational date of Sept. 2013High ethane recoveries (~90%)Anchored by producers with lower GPM conventional gasAbility to accept some quantities of richer Eagle Ford gas
20 What are the royalty considerations? Point of sale can greatly affect value of royalty paymentsSale at wellhead, plant tailgate, or further downstreamPercent of Proceeds (POP) deals vs. fixed fee processingHow are fees associated with processing categorized?Which components are potentially deductible?Be aware of lease clauses with minimum commodity price floorsBoth on natural gas and NGLsMight be triggered when processing commencesStatements can be more complicated and greater potential for confusion may existValue of NGLs should raise overall well economics and allow more wells to be drilledCreates additional value for both producer and mineral owners
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