Kinder Morgan Acquires SouthTex Treaters an Amine Plant Manufacturer

Kinder Morgan is acquiring SouthTex Treaters in a $155 million transaction. The acquisition adds to Kinder Morgan's ability to deliver needed processing in the Eagle Ford Shale. The company will now offer lease arrangements or can simply sell amine plants. Amine plants are being used more widely across the Eagle Ford due to levels of H2S (Sour Gas) in the natural gas stream. The hydrogen sulfide has to be separated from natural gas production before pipeline operators will transport the gas. One of the quickest way to get cut off from the gathering system is to go above acceptable levels of H2S (4 ppm). 

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) today announced it has signed a definitive purchase and sale agreement to acquire SouthTex Treaters, a leading manufacturer, designer and fabricator of natural gas treating plants that remove CO2 and H2S, for approximately $155 million. The manufactured amine plants range in size from 5 to 1,200 gallons per minute of treating capacity. Kinder Morgan Treating, a subsidiary of KMP, is the industry leader and largest provider of contract operated treating and hydrocarbon dew point conditioning plants. The acquisition will allow Kinder Morgan Treating to build amine plants and offer customers the option to own or lease the equipment.

"This acquisition will enable us to provide large amine plants for centralized treating facilities which are often needed in the rapidly developing shale plays," said Bill Stokes, vice president of Kinder Morgan Treating. "We will also be able to replenish our already large inventory of amine plants and offer our customers even more flexibility for their treating needs." Upon closing, which is likely to occur within the fourth quarter this year, the transaction is expected to be immediately accretive to cash distributable to KMP unitholders.

Kinder Morgan Energy Partners, L.P. (NYSE: KMP) is a leading pipeline transportation and energy storage company in North America. KMP owns an interest in or operates more than 28,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel. KMP is also the leading provider of CO2 for enhanced oil recovery projects in North America. One of the largest publicly traded pipeline limited partnerships in America, KMP has an enterprise value of over $33 billion. The general partner of KMP is owned by Kinder Morgan, Inc. (NYSE: KMI). Combined, KMI and KMP have an enterprise value of approximately $55 billion.

Read the entire press release at kindermorgan.com 

Kinder Morgan - Copano Energy Open Eagle Ford Rich Gas System

Kinder Morgan and Copano Energy's Eagle Ford Shale joint venture began gas flows on its rich gas gathering system in August. Plans include more than 400 miles of pipe and more than 700 mmcfd of processing capacity. A condensate line that will traverse much of south Texas is slated to open in mid 2012. 

In our natural gas pipeline segment, certainly the developments in the Eagle Ford continue to be really doing very well. Eagle Ford Gathering which is a joint venture between ourselves and Copano Energy in South Texas, initiated flow on our rich gas gathering system on August 1.

Currently the joint venture expects to have about 400 miles of pipelines with capacity together and process over 700 million cubic feet per day, by early 2012. If you include 50% interest in the joint venture, but not including the crude condensate line, our natural gas pipeline segment has committed about $200 million to expansion projects in the Eagle Ford Shale play. And we continue to make progress on our straight Condensate line which we expect to go and service in mid 2012, that will actually be a part of our products pipeline segment.

Read more quotes from Kinder Morgan at seekingalpha.com

Truck Traffic and Pipeline Advice from the Eagle Ford Task Force

The Eagle Ford Task Force has released advice for truck traffic and pipeline developments. It is all pretty straight forward and will help in making sure pipelines are developed without any problems and our roads are maintained as best as possible. Pipelines:

• Placement of pipelines should avoid steep hillsides and watercourses where feasible
• Pipeline routes should take advantage of road corridors to minimize surface disturbance
• When clearing is necessary, the width disturbed should be kept to a minimum and topsoil material should be stockpiled to the side for replacement during reclamation, accelerating successful revegetation
• Proximity to buildings or other facilities occupied or used by the public should be considered, with particular consideration given to homes
• Unnecessary damage to trees and other vegetation should be avoided
• After installation of a new line, all rights-of-way should be restored to conditions compatible with existing land use.

Roads:

• Trucking companies partnering with the Texas Department of Public Safety to develop a program that would alert companies when their drivers receive moving violations or drivers license suspensions
• Creation of road use agreements or trucking plans between operators and local authorities, including parameters such as:

1. Avoiding peak traffic hours, school bus hours, and community events.
2. Establishing overnight quiet periods.
3. Ensuring adequate off-road parking and delivery areas at all sites to avoid lane/road blockage.

Not Enough Pipelines, Railcars, or Trucks for U.S. Crude

West Texas Intermediate (WTI) crude is trading at a more than $25 discount to Brent Crude. Brent prices are used as the benchmark for two-thirds of the international crude trade. WTI is used as the U.S. benchmark. More than $25 per barrel is an amazing spread when you consider WTI is priced in Cushing Oklahoma and the U.S. accounts for almost 25% of worldwide oil demand. How can oil be cheapest where demand is the highest? When you have a moment, look at Bakken and Eagle Ford drilling levels.

Shale Plays Adding Production Outside of the Gulf Coast

Shale plays like the Bakken and growing plays in West Texas along with an influx of Canadian oilsands production in the midwest have pushed a surplus of oil all the way to Oklahoma. In a perfect market, we could move oil quickly and easily to take advantage of the arbitrage or "free money". Oil needs to penetrate the Gulf Coast refining market to recognize higher prices. Sounds simple.

Pipelines, Railroads, and Trucks are Stressed

We need more pipelines delivering crude in the Gulf Coast. We don't have capacity, so oil marketers resort to railroad agreements. When rail terminals and railcars run at capacity, trucking becomes the last option. For you guys with a truck and trailer, there's a margin waiting to be made between Cushing, OK, and the Gulf Coast.

The idea of trucking crude sounds great, but no one is doing it because they are already working in the shale plays. Trucks are making as much as $5 a barrel to move crude from tanks to pipelines or storage facilities and those are short hauls. If you can make $5 a barrel three to four times in a day ($3,000-4,000 per day) , there is no incentive to make long hauls that would only pay $7.50-10.00 per barrel ($1,500-2,000 per day). The math is simple, so don't expect truckers to fill the gap as long as there is high demand for short haul trips.

The shortage of pipelines, rail facilities, and now trucks has led to the historic spread between foreign brent crude and WTI (the futures spread was $27 on October 14). As the Bakken and other oil plays continue to grow, the problem will only be answered by major pipeline expansions. Some of those are already in the works, but more are likely on the way.

R.T. Signature]

Infrastructure Issues Addressed by the Eagle Ford Task Force

The Eagle Ford Task Force met in Cuero Sept. 28 to discuss the impact oil and natural gas production in the Eagle Ford Shale is having on local community infrastructure. The task force announced today its adoption of several advisements related to truck traffic and pipeline development.

Rapidly Increasing Truck Traffic

The rapid increase in truck traffic on local roads in the Eagle Ford Shale region has led to the deterioration of roads and an enhanced concern for public safety. The 24-member task force, created by Railroad Commissioner David Porter, listened to presentations and concerns from the Texas Department of Transportation, the Association of Energy Service Companies, the Texas Motor Transportation Association and the general public in an effort to determine solutions.

“We are seeing an overwhelming increase in traffic in these small communities and citizens are concerned,” said Commissioner Porter. “So we brought together the trucking industry, oil and gas industry, state and local government and the general public to engage in a productive dialogue, and as a result, we were able to come up with real, tangible solutions.”

Billions in Pipeline Investment

Also on the task force agenda was pipeline infrastructure. Currently several billion dollars worth of pipeline projects are under development in the region, and local communities have expressed concern with how the development of these massive projects will affect them. Representatives from pipeline companies and legal experts addressed the task force, detailing impending projects and outlining their commitment to partnering with local governments and communities.

“The construction of a 20-inch crude oil line running 50 miles through a county can take the place of 1,250 tank truck trips per day, so it is imperative that we get these pipes in the ground; however, we must ensure local communities are protected” said Porter. “Our task force members, including representatives of pipeline companies, have agreed upon guidelines that will hold the pipeline industry accountable.”

Housing Options Limited

Finally, the task force addressed the housing issue currently facing the region. The Texas Department of Housing and Community Affairs spoke about the many programs they offer to combat rent increases and displaced families. Private developer, Bob Zacaraiah, also spoke about what local governments and communities can do to spur more private investment in the region. Several task force members expressed their desire to see builders develop more permanent housing, to foster community building, rather than temporary housing fixes.

As a result, the task force adopted the following advisements:

Pipeline Advisements

• The placement of pipelines should avoid steep hillsides and watercourses where feasible.
• Pipeline routes should take advantage of road corridors to minimize surface disturbance.
• When clearing is necessary, the width disturbed should be kept to a minimum and topsoil material should be stockpiled to the side because retaining topsoil for replacement during reclamation can significantly accelerate successful revegetation.
• Proximity to buildings or other facilities occupied or used by the public should be considered. Particular consideration should be given to homes.
• Unnecessary damage to trees and other vegetation should be avoided.
• After installation of a new line, all rights-of-way should be restored to conditions compatible with existing land use.

Road and Truck Advisements

• The task force supports trucking companies partnering with the Texas Department of Public Safety to develop a program that would alert companies when their drivers receive moving violations or drivers license suspensions.
• The task force supports the creation of road use agreements or trucking plans between operators and local authorities. These agreements could include parameters such as:

• Operators must avoid peak traffic hours, school bus hours and community events.
• Operators must establish overnight quiet periods.
• Operators must ensure adequate off-road parking and delivery areas at all sites to avoid lane/road blockage.

David J. Porter was elected to the Texas Railroad Commission on November 2, 2010. A Certified Public Accountant and successful small business owner, Commissioner Porter has worked with oil and gas producers for nearly three decades providing strategic financial advice and tax counsel. He has a long record of pro-business, free market, conservative credentials. Visit www.rrc.state.tx.us for additional RRC information.