Penn Virginia buying Marcellus pipelines for $1 billion

NEW YORK - Penn Virginia Resources Partners L.P. (NYSE: PVR) said on April 10 that it will pay $1 billion to buy privately-held pipeline firm Chief Gathering LLC. Radnor, Pa.-based Penn Virginia said the acquisition will expand its presence in the Marcellus Shale in Pennsylvania and West Virginia.

Chief Gathering, which is owned by Chief E and D Holdings LP, is a midstream pipeline company with operating assets serving Marcellus Shale natural gas producers primarily in northeastern Pennsylvania.

Customers of Chief Gathering LLC include Chesapeake Energy Corp., Anadarko Petroleum Corp. and Exxon Mobil Corp.

Private-equity firm Riverstone Holdings LLC will be a significant owner of PVR units following the acquisition.

The transaction, when closed, will result in a major expansion of PVR's pipeline systems in the gas-rich Marcellus Shale.

PVR expects to finance the purchase through a combination of committed equity and debt. The transaction is expected to close in the second quarter of 2012, subject to regulatory clearances and other customary closing conditions.

Chief Gathering's assets include six natural gas gathering systems serving over 300,000 dedicated acres in Bradford, Lycoming, Sullivan, Susquehanna, Wyoming and Greene Counties, Pa., and Preston County, W. Va.. Additionally, Chief Gathering is currently constructing a new 750 MMcfd trunkline, anticipated to be in service in the third quarter of 2012, extending from northern Wyoming County to Luzerne County with a connection to Transco's interstate pipeline. PVR currently owns two gathering systems in Lycoming and Wyoming Counties, with a third system in early stage development in Susquehanna County.

William H. Shea, Jr., Chief Executive Officer of PVR's general partner, said, "We expect that by year-end 2013 our midstream business unit will account for almost 75 percent of PVR's EBITDA, up from 40-45 percent today. These assets, together with our Lycoming and Wyoming County gathering assets, position us well to capture significant midstream opportunities in six of the most prolific counties in the northeastern area of the Marcellus Shale. We believe that there are substantial operating synergies and capital cost savings to be realized because of the proximity of the PVR and Chief Gathering systems, and the connectivity to both the Transco and Tennessee interstate pipelines.”

All of the gathering, compression, and dehydration services for the Chief Gathering systems are provided under fee-based agreements with active Marcellus producers including Chesapeake, Anadarko, Statoil, Mitsui, EXCO/BG Group, ExxonMobil/XTO, Chief, Enerplus and Chevron.

As of February 2012, volumes on the Chief Gathering systems were approximately 235 MMcfd and volumes on PVR's Marcellus systems were approximately 210 MMcfd. The new Wyoming County trunkline has 15-year firm transportation volume commitments of 255 MMcfd for 2012, increasing to 355 MMcfd in 2013.

The purchase price of $1.0 billion, subject to adjustments to reflect, among other things, a Jan. 1, 2012, economic effective date of the acquisition, will be paid in a combination of cash and the issuance to Chief of $200 million in a new class of PVR limited partner interests ("Special Units"). The Special Units are substantially similar to PVR common units, except that the Special Units will not pay or accrue distributions until they automatically convert to common units, on a one-for-one basis once the Special Units have not received six consecutive quarterly distributions following issuance.

Nobody’s saying how much of Alaska's AGIA money is going to Exxon Mobil

ANCHORAGE, Alaska - Exxon Mobil Corp. is receiving state reimbursement for its role in the proposed natural gas pipeline project through its partnership with TransCanada Corp. But no one will say how much money Exxon has received or for what, citing confidentiality agreements.

The Alaska Gasline Inducement Act (AGIA), passed by the Legislature in 2007, put in place a licensing agreement with TransCanada that envisioned construction of a large-diameter gas pipeline from the North Slope to Canada or Valdez, or perhaps both, depending on what markets potential gas shippers might be focusing on.

AGIA includes a provision that the state reimburse TransCanada for up to $500 million that it spends on pre-construction work and to prepare an application with the Federal Energy Regulatory Commission, due in 2012.

Much of the political debate at the time was over Exxon's role in the project, primarily because Exxon is the major natural gas producer on the North Slope. Concerns were raised over whether it was fair that the state pay Exxon to do what it would do anyway - produce and sell natural gas into a pipeline.

Exxon has never signed on to the license agreement between TransCanada and the state, but within days after the agreement was finalized TransCanada officials made it clear that Exxon was a vital partner in the project.

According to testimony before the Alaska Legislature earlier this month, as of the end of June, the state will either have paid or will owe TransCanada about $125 million. Gov. Sean Parnell has asked for another $160 million for fiscal year 2012, which begins July 1.

TransCanada spokesman Shawn Howard said that TransCanada, as the AGIA licensee, seeks the reimbursement and then receives it from the state. The company then "shares the reimbursement with Exxon Mobil," he said.

Howard said TransCanada won’t reveal how much state money it has passed on to Exxon, citing confidentiality agreements.

Competing Alaska gasline joint ventures said considering merger

ANCHORAGE - The BP/ConocoPhillips Denali joint venture that is planning to build a massive natural gas pipeline from Alaska to the Lower 48 is in preliminary talks to join a competing project headed by TransCanada and Exxon Mobil, according to a source familiar with the projects.
The BP/Conoco project, known as the Denali Pipeline, received approval from federal regulators earlier this month to conduct an open season to solicit interest in the project from North Slope gas producers. The TransCanada/Exxon project - which won a special license to build a pipeline from the State of Alaska in 2008 - received its open season approval in March.
The $30-billion-plus price tag on the project means it is highly unlikely two pipelines would actually get built - a joining of the projects has long been seen as inevitable.
But BP's growing financial burden from the Gulf of Mexico oil spill may be accelerating the process. BP has already announced plans for up to $10 billion in asset sales, and likely changes in its capital spending.
Dave MacDowell, a spokesman for Denali, said he wasn't aware of such discussions, but stressed that BP and ConocoPhillips "have said repeatedly they are open to considering involvement of any entity that adds value and takes on risk."
The natural gas pipeline would be among the largest single energy infrastructure projects in the world. It would include a massive natural gas processing plant on the North Slope and 1,700 miles of pipe that would most likely run to Alberta, Canada. There, existing pipelines would carry the gas to U.S. markets.
Alaska granted TransCanada a license in January 2008 to build the long-sought companion to the Trans-Alaska Pipeline System, which has been moving oil to U.S. markets since 1977.
That license followed a public bidding process initiated by then-Alaska Gov. Sarah Palin, who canceled a pipeline deal that her predecessor, Frank Murkowski, had negotiated in closed-door sessions with the three major North Slope producers.
The three producers - Exxon Mobil, BP and Conoco - did not take part in Palin's state bidding process, saying it did not provide the kind of tax and tariff assurances they needed. ConocoPhillips announced its competing project shortly after, and BP joined in that project in April 2008.
Many were skeptical of the state-backed project from the beginning, saying it could not proceed without cooperation from the producers. Dwindling state coffers in Alaska, which relies heavily on royalty payments and taxes from oil and natural gas production, also undermined support.
But last year Exxon Mobil said it would partner with TransCanada on the state-backed project. Exxon Mobil holds many of the largest natural gas fields on the North Slope.

ExxonMobil to pay $32.2 million in back-royalties to U.S.

WASHINGTON - Exxon Mobil Corp will pay $32.2 million to the United States to resolve claims that some of its units knowingly underpaid royalties owed on natural gas, the Justice Department said on April 5.
The government alleged that Mobil Natural Gas Inc., Mobil Exploration & Producing U.S. Inc. and affiliates underreported the value of natural gas taken from federal and American Indian leases between March 1, 1988 and Nov. 30, 1999.
As a result, the Mobil entities paid lower royalties than they owed to the United States and to American Indian tribes, the government said. The Mobil entities became part of Exxon Mobil through a 1999 merger.
The case arose out of a lawsuit filed by a private citizen on behalf of the United States under the whistleblower provisions of the federal False Claims Act.
Various other energy companies have agreed to pay more than $200 million to settle their portions of the lawsuit.

Exxon modifies Pegasus Pipeline to transport oilsands crude

IRVING, Texas - Exxon Mobil Corp. has boosted its capacity to transport Canadian oil sands crude from Patoka, Ill., to refineries in Texas and Louisiana.
Exxon Mobil has modified and expanded the capacity of its 1,381-kilometer Pegasus Pipeline by 50 percent to about 96,000 b/d, the company said in a June 17 news release.
The expansion followed a 2006 reversal of the direction of flow in the pipe, most of which had been idle for four years.
Pegasus runs from Patoka, Ill., where several Midwest and Texas pipelines converge, to Nederland, Texas, near Houston.