NuStar - Valero Reach Eagle Ford Pipeline Agreements

NuStar Energy and Valero have reached an agreement that will help move South Texas Eagle Ford crude to local refineries. NuStar will convert a current refined products pipeline to crude oil and the line will be used to move oil from Three Rivers to Corpus Christi where Valero has an additional refinery. The company also plans a new 12 inch pipeline that will make the same journey. Valero has indicated it plans to increase the volume of crude the company is taking from the Eagle Ford and this looks to be another step in that direction. 

NuStar Energy L.P. (NYSE: NS) announced today that the company has entered into an agreement with Valero Energy Corporation (NYSE: VLO) in which NuStar will modify existing sections within its South Texas pipeline system and build new sections to transport Eagle Ford and other crude oils. These projects will help improve transportation of crude and condensate to supply its refineries in Three Rivers, Texas and Corpus Christi, Texas.

NuStar will reverse an eight-inch refined products pipeline that currently runs from Corpus Christi to Three Rivers and will convert it to crude oil service. The pipeline will provide capacity to transport Eagle Ford crude and condensate to Valero’s Corpus Christi refinery, and the line is expected to be in full service by the end of September 2011.

NuStar will also build 55 miles of new 12-inch pipeline that will connect to existing pipeline segments to move crude oil from Corpus Christi to Valero’s Three Rivers refinery. This system is expected to be completed and in service by the second quarter of 2012.”

Read the full press release at nustarenergy.com

NGLs Production in the Eagle Ford Supports Economics

NGLs in the Eagle Ford add needed dollars and cents to the bottom line during times of low natural gas prices. The high btu nature of the gas stream allows companies to market higher valued ethane, propane, butane, and pentanes. The natural gas breakeven for the play when considering NGLs is reported as $1.67 per mcf, but those numbers can be misleading if you don't know how they were calculated. When you see numbers like that, always ask yourself if it represents the average gas well or all wells or is simply one well in Karnes County. The take away is the same either way.  We see lots of estimates and all arrows seem to be pointing in a good direction for the Eagle Ford. 

In July of 2008, the natural gas drilling rig count rose to a peak of 1505 rigs in response to natural gas prices in excess of $13 per MMBtu. As prices fell to below $4 per MMBtu, the rig count responded, falling to 665 just one year later in July, 2009. However, this trend seems to have been broken, since even with prices hovering below $4 per MMBtu for weeks on end, the rig count has again started to climb.

According to Baker Hughes, the number of rigs actively searching for natural gas rose to 898 as of August 26th, 2011. This is up substantially from two years ago. But where is the incentive to drill at sub-$4 per MMBtu levels? The answer is natural gas liquids, or NGLs.

High cost NGLs are probably the number one driver behind rising natural gas production levels, because higher NGLs lead to lower natural gas break-even prices. For example, a natural gas well that is drier (one that contains few NGLs) may have a natural gas break-even price in the range of $4-$5 per MMBtu. By comparison, a natural gas well that is wetter (one that contains a higher level of NGLs) will have a lower break-even point. The level of NGLs present in wells varies from play to play, which is why break-even points differ based on location. For example, it is estimated that there are about 2.9 gallons of recoverable NGLs per Mcf of natural gas in the regions of the Marcellus Shale, and the break-even price for the natural gas in these regions is estimated at $3.17 per Mcf.

Another example is the Eagle Ford Shale, which is considered one of the most liquid-rich plays in the nation. Here, the break-even price for natural gas is estimated at $1.67 per Mcf. And in the Permian Basin, due to the extremely high NGL concentration, some companies are producing associated natural gas essentially for free; the sale of crude oil and NGLs allows them to give the gas away at no cost and still be profitable.

Read the full news release at seekingalpha.com

Shell Reversing Houma-Houston Pipeline?

Shell's Ho-Ho or Houma to Houston Pipeline could be reversed to help move Eagle Ford Shale crude oil east of Houston and further into the Gulf Coast refinery complex. If agreed, the reversal will add 300,000 barrels per day of flowing capacity from Houston to Louisiana by early 2013. 

Shell Pipeline Co LP (RDSa.L) said on Thursday it was considering reversal of the Houma-to-Houston pipeline system to ship Eagle Ford crude and other oils eastward to the U.S. Gulf Coast refining hub.

The reversed so-called Ho-Ho line would flow 300,000 barrels per day of crude from the Houston and Port Arthur, Texas, markets to the Louisiana markets by early 2013, the company said in a release.

"Shell Pipeline's Ho-Ho reversal would provide pipeline access to additional crudes across the 300 miles (483 km) of the U.S. Gulf of Mexico refining complex," a news release said.

"Those crudes include the domestic crude oil production increases in Texas and the midcontinent including the Barnett, Eagle Ford and Bakken Shale plays, as well as the growing crude supplies in the Cushing, Oklahoma, area," the release said.

Read the full news release at Reuters.com

NuStar, EOG Agree to Rail Offloading in St. James, LA

St James, Louisiana will be home to a rail facility that EOG Resources and NuStar will use to offload crude from the Eagle Ford Shale and other oil plays. By using rail, EOG will be able to market its crude outside of South Texas Gulf Coast area and will likely get better prices as Eagle Ford production grows. EOG was proactive in getting agreements to ship crude in the Bakken Shale and it looks as if they're on the same track in the Eagle Ford. 

The project will facilitate movement and storage of crude oil production from the Bakken, Eagle Ford and other developing shale plays in the United States.

The new project will include the addition of new rail and unit train unloading facilities. Two new storage tanks with a combined 360,000 barrels of capacity will also be built in conjunction with the project. The new facility will be equipped to receive at least one 70,000-barrel train per day and will have enough track and other infrastructure to stage an additional train to await offloading. The rail project is expected to be completed in the first quarter of 2012, and the tanks are expected to be completed and in service in May 2012.

Magellan Pipeline to Corpus Christi Loses Interest

Magellan might have been a little late to Eagle Ford Shale Pipeline party. The company mentioned in its earnings release that momentum had been lost in getting an $80 million project planned to move Eagle Ford crude to Corpus Christi. The company says it is working on a quicker solution to connect Corpus Christi, but this might be the first sign that the initially proposed pipeline will not be built.

"With regard to the Eagle Ford pipeline project we previously announced, we are no longer working with momentum but we are in discussions with other third parties with regard to a much more cost efficient and faster market solution to transport Eagle Ford production to Corpus Christi," a company spokesman said during the second-quarter conference call.

The Eagle Ford Shale formation in south Texas holds about 3.35 billon barrels of crude oil.

In July, the Eagle Ford formation produced 160,000 barrels per day, up from the 71,000 bpd in May, according to oil consultants Bentek, with some analysts expecting production eventually to ramp to as much as 420,000 bpd.

"Again we are talking to third parties about a project that will get us to Corpus Christi at a lower cost and much quicker than a new build from the production area to the Gulf," the company said.

Read the full news release at Reuters.com