Gas Pipeline Estimated at $821M

The first major interstate natural gas pipeline construction project growing directly out of the booming Fayetteville Shale Play is awaiting one final go-ahead before dirt begins churning later this spring.

Texas Gas Transmission LLC of Owensboro, Ky., is wrapping up the preconstruction process of a proposed $821 million pipeline that includes two major transport sections through both central Arkansas and central Mississippi. The project is the first major new effort to provide an outlet to transport gas from the now-producing Fayetteville Shale in north-central Arkansas to high-demand, out-of-state markets. Texas Gas Transmission is a subsidiary of Boardwalk Pipeline Partners LP.

“The amount of gas is too much to put into the existing pipelines to get to market, so the need for this project is definitely justified,” said Gene Hammons, president of DeSoto Gathering Co. LLC, a subsidiary of Southwestern Energy Co. of Houston, the largest player at the Fayetteville Shale Play.

DGC, which has offices in both Houston and Conway, was formed in 2005 to offer gas-gathering services directly related to exploration in north-central Arkansas. Although it’s a subsidiary of Southwestern Energy and a sister to Seeco Inc. of Fayetteville, DGC offers pipeline and transport services to all producers in the area.

Once the Fayetteville Shale Play proved back in 2005 that it would yield large amounts of natural gas for decades to come, several transmission companies looked for backers to build expensive interstate transmission pipelines specifically tied to that area to reach other markets.

“It’s typical that companies first look to see who will commit to using those lines before any other work is done,” said John Thaeler, senior vice president of Seeco Inc.

In the case of Texas Gas Transmission, it was yet another subsidiary of Southwestern Energy – this time Southwestern Energy Services Co. – that stepped up to sign a “precedent agreement” in December 2006 to be the “foundation shipper,” or primary backer, of the marquee transmission line. The agreement basically promises the company will move a justifiable amount of gas in Texas Gas Transmission’s proposed pipeline.

“When built, these new pipelines will help ensure that we have adequate takeaway capacity to meet our projected production growth and provide us access to premium markets,” said Harold Korell, president and chief executive officer of Southwestern Energy.

Other similar projects that were shopped around have been put aside until production threatens to exceed the capacity of the first pipeline, which some say is likely several years down the road.

The Highland Trails Pipeline Project, proposed early last summer by Southern Star Central Gas Pipeline Inc., also of Owensboro, would have connected the developing Fayetteville Shale production basin to Kinder Morgan Inc.’s Rockies Express Pipeline by heading directly north from Conway County through central Missouri and beyond.

“Right now there looks to be enough takeaway capacity, especially with the new [pipeline], from the Fayetteville Shale,” said Tim Meyer, a business development executive with Southern Star Central. “We haven’t completely scrapped the idea – it’s still out there – but I’d categorize it as being in a holding pattern.”

Two other major gas transmission lines serve the Fayetteville Shale: the Ozark Gas Transmission, built in the 1980s, and the CenterPoint Energy Gas Transmission, built in the 1960s, according to Texas Gas Transmission officials.

Texas Gas Transmission expects a final environmental impact statement from the Federal Energy Regulatory Commission in March and a final certificate to go ahead with construction from FERC in April.

Two for One

TGT’s project includes two separate transmission lines that are expected to be in service by this time next year.

The Fayetteville Lateral, a 167-mile, 36-inch pipeline, will run from Grandview in Conway County east through Faulkner, Cleburne, White, Woodruff, St. Francis, Lee and Phillips counties to Lula, Miss.

It’s expected to cost about $502 million.

The 98-mile Greenville Lateral, being built at the same time as part of the same project, will run from Greenville, Miss., east through Kosciusko, Miss. It’s expected to cost about $319 million.

The Fayetteville Lateral is expected to have a total capacity of about 1.1 billion cubic feet of compressed gas per day. The Greenville Lateral will be capable of about 750 million cubic feet per day.

“This is a big project and it will be transporting a lot of gas to a lot of key markets, essentially making exploration at the Fayetteville Shale Play worth its while,” said Tina Baker, a right-of-way manager with TGT.

“Without the gas being produced there, there would be no need for the transmission line, and without the transmission line, it’d be hard to get that gas to a market.”

Texas Gas serves six major metropolitan areas, including Memphis, Louisville, Ky.; Indianapolis; Evansville, Ind.; and Cincinnati and Dayton, Ohio.

Rights of Way

Many landowners in north-central Arkansas have already been the beneficiaries of big mineral leasing agreements and royalty deals with explorers looking to extract gas from within the deep layers of shale under their property.

The construction of the Fayetteville Lateral will traverse the land of more than 500 private property owners, and rights of way have to be acquired before the project moves forward.

Baker said private land acquisition for the Fayetteville Lateral project is winding down, as the company has already secured easements for 88 percent of the territory needed.

“We started in fall 2006 with preliminary survey work and getting tax records to see who owns those properties; then in April 2007 we began contacting landowners to acquire rights of way,” Baker said.

Baker stressed that all landowners on whose land the pipe will be buried have already been notified. She expects to have the final deals in place in the next couple months.

When construction begins later this spring or early summer, Baker said, the company will hire nearly 450 Arkansas workers to complete the project.

 

Buried Pipe

Although “the vast majority” of landowners, according to Baker, come to terms with the company and one of its 20 acquisition agents working in Arkansas, a few won’t agree. If push comes to shove, the right of way can be acquired through eminent domain because interstate pipelines are regulated by the Federal Energy Regulatory Commission.

The easements grant Texas Gas the right to construct, operate and maintain the underground pipeline facility, but does not transfer the title of the land to the company.

Both Baker and a spokesman for Texas Gas declined to give even a ballpark figure on how much they are paying landowners for the rights of way since acquisitions are still a work in progress.

“No matter what number I would provide you, it potentially runs the risk of a landowner seizing on that number and it affecting a negotiation with our right-of-way agent,” Stephen Gonzalez, a Texas Gas spokesman, wrote in an e-mail. “Land acquisition is still ongoing. As you would understand, we treat every easement negotiation as a private matter. In addition, there can be a multitude of varying factors that can result in differing offers.”

The fair market value of each easement is determined by an independent appraiser, and an initial offer is then made. While recurring payments are typical with gas mineral leasing agreements that include continuous royalty checks, Baker said right of way payments are a one-time deal. The company also compensates landowners for any damage incurred because of the pipeline, including payments for crops and timber, for example, based on local market prices for the product.

Neither Gonzales nor Baker could say how much the company plans to spend on acquiring rights of way in Arkansas.