OnQuest said it has been awarded a contract by joint venture partners Stabilis Energy and Flint Hills Resources (FHR) to provide a turnkey scope of engineering services and project management for a 100,000-gallon-per-day natural gas liquefaction and distribution facility in George West, Texas, that will address demand for a reliable and safe supply of high-horsepower fuel to oilfields in Texas’s Eagle Ford Shale.
OnQuest will provide a fully functioning LNG facility with scope that includes project execution, engineering, construction, buildings, power and utilities. OnQuest’s sister company James Construction Group is contracted with OnQuest to construct the plant. Work begins immediately.
“OnQuest, James Construction Group, and our parent company Primoris Services Corporation are extremely pleased to have won the competition for the work at George West,” said OnQuest president Randolph R. “Randy” Kessler.
“We’re encouraged that the market for providing turnkey engineering, procurement and construction project supervision on micro-LNG process plants continues to grow,” said Kessler. “This win reflects Stabilis and FHR’s confidence in OnQuest’s ability to deliver LNG facility projects profitably and on schedule.”
Stabilis Energy is a Beaumont, Tex.-based holding company focused on investments in developing liquefied natural gas (LNG) in North America. Flint Hills Resources is a leading refining, chemical and biofuels company. Chart Industries will provide cryogenic and liquefaction equipment for the project.
“OnQuest shares Stabilis Energy and Flint Hills Resources’ commitment to expediting a cost-effective solution for operations in the Eagle Ford basin,” added Kessler. “And we look forward to working as engineering partners with technology provider Chart Industries.”
OnQuest specializes in lump-sum, turnkey engineering, procurement and construction project management (EPC). In 2008, OnQuest and sister company ARB, Inc., completed a micro-LNG plant producing 160,000 GPD LNG in Boron, Calif., for Clean Energy Fuels Corporation.
Established in 2002, OnQuest has become a global leader in turnkey engineering, procurement and construction for small and mid-sized LNG production and distribution facilities — in particular for companies requiring purpose-built facilities or that have natural gas assets far from existing LNG terminals. The company also provides engineering feasibility studies and project cost estimates to companies considering investments in mid-scale process plants.
Kinder Morgan Energy Partners and Copano Energy announced a definitive agreement whereby KMP will acquire all of Copano’s outstanding units for a total purchase price of approximately $5 billion, including the assumption of debt.
The transaction, which has been approved by the boards of directors of both companies, will be a 100 percent unit for unit transaction with an exchange ratio of .4563 KMP units per Copano unit. The consideration to be received by Copano unitholders is valued at $40.91 per Copano common unit based on KMP’s closing price as of Jan. 29, 2013, representing a 23.5 percent premium to Copano’s close on Jan. 29, 2013.
The transaction, which is expected to close in the third quarter of 2013, is subject to customary closing conditions, including regulatory approval and a vote of the Copano unitholders. TPG, Copano’s largest unitholder (owning over 14 percent of its outstanding equity), has agreed to support the transaction.
Copano, a midstream natural gas company with operations primarily in Texas, Oklahoma and Wyoming, provides comprehensive services to natural gas producers, including natural gas gathering, processing, treating and natural gas liquids fractionation. Copano owns an interest in or operates about 6,900 miles of pipelines with 2.7 billion cubic feet per day (Bcf/d) of natural gas throughput capacity and 9 processing plants with more than 1 Bcf/d of processing capacity and 315 million cubic feet per day of treating capacity.
“We are delighted to have reached this agreement with Copano, a company that we know very well and have partnered with through the years, as this transaction will enable us to significantly expand our midstream services footprint,” said KMP Chairman and CEO Richard D. Kinder. “As a result of this acquisition, we will be able to pursue incremental development in the Eagle Ford Shale play in south Texas, gain entry into the Barnett Shale Combo in north Texas and the Mississippi Lime and Woodford Shales in Oklahoma. We continue to be bullish on the domestic shale plays and believe they will drive substantial future growth at KMP. Copano’s assets are very complementary to ours, as KMP is principally a pipeline transportation and storage company, while Copano is primarily a fee-based gathering, processing and fractionation player. Broadening our midstream assets will allow us to offer a wider array of services to our customers.”
“We are excited to have reached this agreement with KMP, which delivers a significant premium to our unitholders that is reflective of the strength and potential of our business and provides an ownership interest in a highly diversified industry leader with an impressive history of sustained distribution growth,” said Copano President and CEO R. Bruce Northcutt. “Through this transaction, Copano will become part of a larger, investment grade organization with stable cash flows and the financial resources to fund our increasing number of high-return growth projects. We are committed to continuing to support our customers with the highest quality service, and expect that KMP’s size and scale will allow us to provide even more value for customers. In addition, we expect this combination will provide opportunities for our many talented employees. We look forward to completing this transaction and to building significant long-term value for all of our stakeholders as part of KMP.”
“Copano is already executing on a substantial backlog of expansion projects for which it has secured customer commitments and is exploring a significant amount of projects incremental to these,” Kinder added. “Given the growth in cash flow that will come from the projects already in progress with existing customer commitments, we expect the multiple of EBITDA paid for Copano to decline to the very low double digits over the next few years and considering the growth opportunities beyond that, we expect continued attractive EBITDA growth from these assets thereafter.”
The acquisition of Copano is expected to be accretive to cash available for distribution to KMP unitholders upon closing. The general partner of KMP, Kinder Morgan, Inc. (NYSE: KMI), has agreed to forego a portion of its incremental incentive distributions in 2013 in an amount dependent on the time of closing. Additionally, KMI intends to forgo $120 million in 2014, $120 million in 2015, $110 million in 2016 and annual amounts thereafter decreasing by $5 million per year from this level. The transaction is expected to be modestly accretive to KMP in 2013, given the partial year, and about $0.10 per unit accretive for at least the next five years beginning in 2014.
“Copano’s cash flow is largely and increasingly fee based, and our accretion projections are based on commodity prices consistent with the current forward curve for the portion that is sensitive to commodity prices,” Kinder explained.
The acquisition will be immediately accretive to KMI’s cash available to pay dividends, even after KMI foregoes a portion of the incremental incentive distributions this transaction is expected to produce. The increase in KMI’s cash available to pay dividends (net of the amounts voluntarily foregone) is expected to be approximately $25 million in 2014 growing to approximately $70 million in 2016.
“We anticipate retaining the vast majority of Copano’s approximately 415 employees,” Kinder said. “This transaction is about producing future cash flow and expanding our midstream services footprint.”
Upon closing, KMP will own 100 percent of Eagle Ford Gathering (currently a joint venture with Copano), which provides gathering, transportation and processing services to natural gas producers in the Eagle Ford Shale. Eagle Ford Gathering comprises approximately 400 miles of pipelines (including its capacity rights in certain KMP pipelines) with capacity to gather and process over 700,000 MMBtu/day.
Citi acted as financial advisor for KMP and Weil Gotshal & Manges LLP and Bracewell & Giuliani acted as legal counsel to KMP. Barclays Capital Inc. and Jefferies & Company, Inc. provided financial advisory services to Copano and Wachtell, Lipton, Rosen & Katz acted as legal counsel to Copano.
- Kinder Morgan Energy Partners to buy Copano Energy (fuelfix.com)
- Kinder Morgan Energy buying Copano for $3.2B (seattlepi.com)
by Karen Boman Rigzone Staff
The liquefied natural gas (LNG) division of Calgary-based Ferus LP successfully completed in October what the company believes to be the first-ever hydraulic fracturing operation utilizing liquefied natural gas (LNG) as engine fuel in North America.
Ferus’ LNG Division was engaged by a major oil and gas service company in the United States to conduct the pilot project, which involved six dual-fuel 2,250 horsepower pressure pumper units, powered by LNG, to stimulate well performance in the south Texas Eagle Ford shale.
The dual fuel systems allow for natural gas and diesel to be consumed simultaneously with no decrease in performance, Jed Tallman, manager of market development for Ferus LNG, told Rigzone. Approximately 10,000 gallons of LNG was used in the pilot project, which took place in the southwestern portion of the Eagle Ford play.
While the company cannot discuss the plans of the operator involved in the pilot project, Ferus LNG has been contacted by numerous operators and service companies regarding LNG as a low-cost, environmentally superior alternative fuel, Tallman said.
The increase in interest by operators and service companies in using LNG for hydraulic fracturing has been dramatic.
“Because of the large amounts of diesel consumed in fracturing fleets, the use of LNG as an alternative fuel will result in cost savings for the operator or service company, not to mention a significant reduction in greenhouse gas emissions,” Tallman commented.
“LNG offers significant environmental and cost-saving advantages and is quickly becoming the alternative fuel of choice for heavy-duty high horsepower on-road and off-road applications in North America,” said Ferus President and CEO Dick Brown in a Nov. 28 statement. “We were very pleased to play such a critical role in this ground-breaking project, and we intend to be at the forefront of this growing industry as more and more diesel consumers make the switch to North America’s abundant supply of natural gas.”
It is difficult to estimate the specific size of the market for LNG in hydraulic fracturing and in other areas such as railroad transportation and trucking moving forward, Tallman commented.
“But given the economic benefits, improved emissions profile, and increased gas production, we feel that LNG will make up a considerably larger percentage of our domestic energy consumption in the future.”
While the use of LNG for hydraulic fracturing is not being specifically done to alleviate criticism of hydraulic fracturing, the improved emissions profile of natural gas certainly is a benefit, Tallman said.
To complete this project, which marks a significant milestone in the adoption of natural gas as an alternative engine fuel, Ferus managed the entire supply chain on behalf of its client including LNG supply, transportation, and on-site storage and vaporization using specialized equipment and highly-trained personnel.
In addition to being a cleaner-burning and less expensive fuel alternative, LNG is non-toxic, non-combustible, non-flammable as a liquid, and dissipates into the atmosphere in the event of a leak or a spill, making it safer than diesel and gasoline, the company said in a statement.
The use of LNG requires specialized fuel handling equipment and additional training for individuals involved in the LNG supply chain.
“As a leading provider of cryogenic liquids for the energy sector, Ferus is uniquely qualified for the undertaking,” Tallman said.
The increased use of natural gas to fuel not only hydraulic fracturing but transportation has grown thanks to the abundance of shale gas in the United States.
The use of natural gas over diesel is becoming more widespread, likely due to the cost benefits associated with fuel switching, according to a Nov. 28 analyst report from GHS Research. GHS referenced Baker Hughes‘ Nov. 26 announcement that it would convert a fleet of its Rhino hydraulic fracturing units to bifuel pumps as a way to improve operational efficiency, lower costs and reduce health, safety and environment impacts. Bifuel is a mix of gas and diesel.
The new pumps use a mixture of gas and diesel, reducing diesel use by up to 65 percent with no loss of hydraulic horsepower. The converted fleet, which meets all U.S. Environmental Protection Agency emissions standards, can also reduce a number of emissions including nitrogen oxides, carbon dioxide and particulate matter.
Baker Hughes first converted a small fleet of its units in Canada; the success Baker Hughes saw with this endeavor prompted to company to convert an entire fleet in the United States. The company is converting several more fleets of Rhino trucks to Rhino Bifuel equipment. Baker Hughes also has a test program in Oklahoma, where a number of light-duty vehicles have been converted to natural gas.
Westport Innovations, which manufactures natural gas-powered truck engines, recently reported it is building a railroad locomotive engine that can run on LNG. During 2012, the company saw “broad consensus” for the first time that natural gas will take material market share in every global transportation market within the next five years, said David Demers, chief executive officer for Westport, during the company’s third quarter 2012 earnings update Nov. 8.
Demers noted that consensus suggests that the company will see 7 percent to 15 percent of the North American trucking industry run on natural gas in 2017.
Westport Innovations will also introduce new natural gas-powered versions of the Ford F-450 and F-550 Super Duty trucks in mid-2013, the company said in a Dec. 3 statement.
“Although current demand for natural gas used in vehicles is minor relative to the demand associated with power generation, industry and residential heating, it is catching on and may soon reach a tipping a point where growth rapidly accelerates, with or without government intervention,” GHS reported.
- Baker Hughes using natural gas in fracturing jobs (fuelfix.com)
- Baker Hughes Converts Fleet of Hydraulic Fracturing Units to Bifuel (maritime-executive.com)
- USA: Waller Marine to Develop LNG Terminal (mb50.wordpress.com)
- Natural gas exports are in near future, Exxon says (star-telegram.com)