The New Pipeline Landscape vs the Law of Diminishing Returns

The New Pipeline Landscape vs the Law of Diminishing Returns

The nation’s pipeline projects this year have met with volcanic reactions that canceled three majors in the Eastern Atlantic, stalled several others, and turned upside down at least three already in service. These are the facts at hand, which now bring even greater challenges to natural gas and power utilities in need of more fuel to meet consumer demand; refineries that require feedstock; petrochemical facilities that depend on supplies to produce raw materials used globally; and U.S. producers who transport oil and gas to end markets. If the current pipeline landscape subsists, the aftereffects are predicted to bring seriously diminishing returns in an era of carbon-neutral goals.

Rystad Energy

Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Their products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. 

www.rystadenergy.com

The nation’s pipeline projects this year have met with volcanic reactions that canceled three majors in the Eastern Atlantic, stalled several others, and turned upside down at least three already in service. These are the facts at hand, which now bring even greater challenges to natural gas and power utilities in need of more fuel to meet consumer demand; refineries that require feedstock; petrochemical facilities that depend on supplies to produce raw materials used globally; and U.S. producers who transport oil and gas to end markets. If the current pipeline landscape subsists, the aftereffects are predicted to bring seriously diminishing returns in an era of carbon-neutral goals.

According to Rystad Energy, if the Dakota Access Pipeline (DAPL) is shut down in August following a July court mandate to halt operations and empty its line of Bakken crude oil, an initial 300,000 BPD will have to be transported by rail. The DAPL is the largest outbound Bakken pipeline, which means other pipelines and refineries will need to absorb at least 900,000 BPD. And as far as those “other” pipelines, the DAPL ruling came on the heels of a court-ordered closure earlier in July of the Bakken’s Tesoro High Plains Pipeline that’s been in operation for 67 years. As curtailed volumes in the Bakken are expected to come back online later this year, Rystad foresees significant bottlenecks ahead with the lack of primary exit routes. This suggests more rail, more trucks, more flaring, and more emissions. Again, diminishing returns.

Rystad also predicts gas output from the Permian will rebound during the second half of this year and is expected to return to record levels by late 2021. That’s the good news. The bad news is that regulatory obstacles and belt-tightening have delayed or put on hold several pipelines to feed supplies to the East Coast, Gulf Coast LNG facilities, and Mexico. With the need for new gas takeaway projects from the Permian beginning in 2023, Rystad estimates another period of increased gas flaring citing it’s highly possible that any new pipelines will be approved too late, resulting again in a situation with insufficient infrastructure.

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How an Oil and Gas Billionaire Cast a Few Minnows Then Reeled in a Whale

How an Oil and Gas Billionaire Cast a Few Minnows Then Reeled in a Whale

Nearly 4,600 miles from Prudhoe Bay, Alaska, Houston-based Hilcorp Energy has closed on the largest acquisition of its corporate life. Founder Jeffrey Hildebrand, the previous CEO who now serves as the company’s executive chairman, sealed his name early on to a distinct oil and gas strategy that’s led to a most remarkable moment with the $5.6 billion acquisition of BP’s upstream and midstream assets in Alaska.

Hilcorp Energy

Hilcorp was founded in 1989 and their mission is to be the premier independent exploration production company in the country. Today, they are the largest privately owned oil and natural gas producer in the United States. They operate in Alabama, Alaska, Colorado, Louisiana, New Mexico, Ohio, Pennsylvania, Texas, and Wyoming. 

www.hilcorp.com

Growing the largest independent oil and gas company in the nation, Hildebrand set off from Exxon in the late 1980s as a geologist and petroleum engineer and soon discovered wild success reinvigorating old and declining oil and gas fields. Hilcorp’s operations currently lie in Ala., Alaska, Colo., La., N.M., Ohio, Pa., Texas and Wyo. But it’s Alaska where Hildebrand discovered a certain calling that now has airlifted Hilcorp into a new stratosphere.

But first, a little backstory because this is how certain oil and gas companies have discovered a sweet spot for their own distinct strategy.

Founded in 1989, Hilcorp, under Hildebrand’s leadership, began snapping up oil and gas leases on the cheap during Alaska’s annual Cook Inlet auctions, most often as the lone bidder. With the Prudhoe Bay oil field in decline, the company earned a solid reputation for deploying new technology that squeezed out higher production from old assets there bought from energy majors who moved on to other, more lucrative projects.

Over time, Hildebrand and Hilcorp proved to be an Alaskan oil and gas champ that bought up mature fields and exploited reserves using its innovations that realized a hefty profit. In short order, Hilcorp became the primary operator in the Cook Inlet, which today is the only supply of natural gas to feed Anchorage and Southcentral Alaska. As recently as June 24, Hilcorp bid on and won another 7,146 acres at the Cook Inlet for an average price of $26.76 per acre. Again, the solitary bidder. The company now is considered the largest private operator and gas supplier in the state. And that’s before the latest BP deal.

When BP in August last year announced parting ways with $10 billion in assets by 2020—specifically the company’s Alaska operations—Hilcorp leaped on the opportunity with a $5.6 billion purchase offer that was quickly accepted. Part one of this megadeal includes oil and gas leases within Point Thomson, Milne Point, and Prudhoe Bay, making Hilcorp the second-largest producer in the state behind ConocoPhillips, as well as the operator of the massive Prudhoe Bay oil field. The acquired leases will add to Hilcorp’s already sizeable producing assets there, which will augment its more than 530,000 gross acres and 500+ operating wells.

Part two, which is expected to be approved by local regulators in September, includes BP’s 50% ownership in the 800-mile Trans Alaska Pipeline System (TAPS). Constructed in 1977, TAPS extends from Prudhoe Bay in the north to Valdez on the southern coast and is one of the largest pipeline systems in the world. The total divestiture by BP for all intents and purposes ends the era of the oil giant in the Land of the Midnight Sun dating back to 1959.

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The Money Backers:  KKR & Co.

The Money Backers: KKR & Co.

In RMR’s continuing series The Money Backers, we give readers a glimpse of who’s who and who owns what in energy’s private equity world.  From the largest to the smallest to the newest, we look especially at those firms making hay in the midstream industry to provide the capital infusion required to give growth projects liftoff.

KKR & Co.

KKR & Co. Inc. is an American global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate, credit, and, through its strategic partners, hedge funds.

www.kkr.com

During the “buyout boom” of the late 1980s, the biggest news to travel between the lips of Wall Street bankers and the ears of its corporate investors was the $31.1 billion buyout of RJR Nabisco. Drama surrounding the deal and its colorful actors played on magazine covers and front-page headlines as the N.Y.-based KKR investment group collected a $75 million transaction fee and secured its place in high-finance history.

Since then, KKR has risen to the ranks of one of the world’s largest investment firms with offices across the U.S., Europe, the Middle East, Africa, and Asia-Pac. KKR’s investments include oil and gas assets in the upstream sector as well as energy infrastructure across the globe. On the midstream side, the firm continues to shoot for “big” with its latest announcement to buy a 65% equity interest in TC Energy’s Coastal GasLink Pipeline project. The $6.6 billion, 416-mile Coastal GasLink will transport 2.1 BCFD of natural gas from B.C., to an LNG liquefaction and export facility also in B.C. That facility is currently under construction.

Here’s a look at KKR’s midstream portfolio companies in the U.S.:

  • Georgia-based Colonial Pipeline, the largest refined product pipelines in North America. Colonial transports more than 3 MMBbls of gasoline, diesel and jet fuel between the Gulf Coast and the N.Y., harbor area.
  • Genesis Energy, headquartered in Houston, operates four divisions that include offshore pipeline transportation, refinery services, marine transportation, and onshore facilities and transportation in Texas, La., Ark., Miss., Ala., Fla., Wyo., and the Gulf of Mexico.
  • Williams’ Rocky Mountain Midstream, the largest private natural gas gathering and processing and crude oil gathering operations in the DJ Basin. Tulsa-based Williams and KKR acquired these systems from Discovery Midstream in 2018 for $1.2 billion.

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The Money Backers: Turnbridge Capital Partners

The Money Backers: Turnbridge Capital Partners

In RMR’s continuing series The Money Backers, we give readers a glimpse of who’s who and who owns what in energy’s private equity world.  From the largest to the smallest to the newest, we look especially at those firms making hay in the midstream industry to provide the capital infusion required to give growth projects liftoff.

With offices in Dallas and Houston, Turnbridge Capital Partners has carved out a niche in the oil and gas industry with investments exclusively in the energy services and equipment sphere. This private equity firm targets service providers and manufacturers whose customers lie in the upstream, midstream and downstream sectors, and looks for investment opportunities between $25-$100 million.

Turnbridge Capital Partners

Turnbridge Capital Partners is a private equity firm targeting investments in middle-market service providers and equipment manufacturers that sell into the energy and infrastructure industries.

www.turnbridgecapital.com

Cimarron Energy

Cimarron is a leading manufacturer of engineered production, process, and environmental equipment for the upstream and midstream energy industries.

www.cimarron.com

Among its nine portfolio companies, Houston-based Cimarron Energy has experienced a serious growth spurt that expands its footprint in emissions control and environmental systems in a big way. With the recent announcement of the company’s second acquisition inside of a year, financial backer Turnbridge is clearly putting its chips on the latest process technologies to reduce emissions across the oil and gas complex.

A quick look:

  • Cimarron in July 2019 acquired Midland, Texas-based Hy-BON/EDI, which specializes in low-pressure gas management systems. According to the company’s history, the founder developed the first vapor recovery unit back in 1952. Today, Hy-BON/EDI’s product offerings include gas booster systems, casinghead pressure reducing units, compressor packages, and VRUs that operate in more than 20 countries.
  • Fast forward to May 2020 and Cimarron’s acquisition of Austin-based Aereon, which engineers flares, enclosed combustors, thermal oxidizers, and VRUs found in more than 46 countries.
  • Combined, the two acquisitions catapult Cimarron Energy from a nationwide supplier to a global provider with offices on four continents and a multi-brand recognition that lifts this 50-year-old manufacturer into the stratosphere.

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