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TransCanada bets on Canadian drillers; 2017 a fine-tuning year for midstream

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TransCanada bets on Canadian drillers; 2017 a fine-tuning year for midstream

TransCanada hedges on LNG project's fortunes with bet on Canadian drillers

TransCanada Corp. is betting that it can fill a planned C$1.4 billion gas pipeline even without the LNG plant it was originally meant to serve as Canadian producers look for ways to counteract the effects of a flood of cheap U.S. gas.

Armed with 20-year commercial contracts from shippers that account for 1.5 Bcf/d of firm service, TransCanada is confident that building a large portion of its proposed North Montney Mainline will pay off as producers seek an outlet for gas from the northern reaches of the prolific Montney Shale that straddles the Alberta-British Columbia border. The Calgary, Alberta-based company said building 206 kilometers of 42-inch line that connects with its Alberta gathering network will allow shippers to sell gas that had been intended for liquefaction in traditional North American markets.

Drillers in the Montney and nearby Duvernay Shale have been using fleets of pad-based "walking" rigs that can drill multiple wells in a close formation without high setup and moving costs. Producers are attracted to the area because of the high liquids component of the gas, including condensate, an ultra-light oil that is blended with oil sands bitumen to help it flow in pipelines. Condensate at the Edmonton, Alberta, hub closed at C$62.19 per barrel as of March 21, or about US$46.59/bbl. Sales of condensate have helped producers offset weaker gas prices, which closed at Alberta's benchmark AECO C hub at C$2.71/Mcf on March 21.

After a year of megadeals, midstream industry set to fine-tune holdings in 2017

Megamergers and acquisitions dominated midstream energy sector headlines in 2016, but smaller-scale infrastructure deals appear poised to steal the M&A spotlight in 2017.

Deals announced since Jan. 1 point toward the smaller-sized asset acquisition trend. Only two of the select deals surveyed by S&P Global Market Intelligence passed the $1 billion mark, and several landed in the $100 million to $250 million range.

"They seem to fall into two categories of either being a transaction designed to simplify a company's corporate structure, or they seem to be designed to give a company a more strategic position in a prime market, particularly the Marcellus, Permian and Utica [basins]," said Katie Bays, an energy analyst at Height Securities LLC.

Marathon Oil continues Permian spree with $700M bolt-on acreage buy

Marathon Oil Corp. expanded its push into the Permian Basin with a $700 million agreement to purchase 21,000 acres of land in the New Mexico portion of the play.

During the company's fourth-quarter 2016 earnings call, CEO Lee Tillman said 90% of the company's operating budget for 2017 would be spent in the Bakken, Eagle Ford and SCOOP/STACK plays. In the past month, however, the company has reached agreements to add more than 91,000 acres in the Permian, with the vast majority being in the Delaware Basin. The acquisitions have not been cheap: The company has said it will spend approximately $1.8 billion in the pair of deals.

Morningstar analyst David Meats told S&P Global Market Intelligence that the per-acre price paid by Marathon in the March 21 deal was more than the previous agreement but not overly high for the play. Meats said acquiring 20,000 of the 21,000 acres in the Delaware Basin came at $35,000 per acre, compared to $18,900 per acre in the acquisition of acreage owned by BC Operating earlier in the month.

Colorado could set rules for gas gathering lines, largely unregulated by feds

The Colorado Public Utilities Commission may start regulating rural gas gathering lines, aiming to close a gap the federal pipeline safety regulator has yet to address.

Joe Molloy, the commission's pipeline safety program chief, said he has seen a rise in complaints from residents about gathering line construction and abandonment issues. Molloy plans to hold public engagement meetings in the coming months to prepare the commission for proposing a new rule in spring.

Gathering lines bring product from the wellhead to the next phase of the value chain, often a processing facility or transmission line. Rural gas gathering lines are some of the least regulated hydrocarbon pipes in the country.

Market snapshot: LPG export capacity to expand on East Coast

A leading exporter of natural gas liquids announced last month that it would boost U.S. export capacity by proceeding with expanding pipeline capacity to bring propane and other NGLs from Northeast production areas to East Coast export terminals.

In a conference call Feb. 22, Sunoco Logistics Partners LP said it is proceeding with an expansion of its Mariner pipeline franchise by building the proposed ME 2X pipeline. The pipeline will add capacity of 250 Mbbl/d to its 70-Mbbl/d Mariner East 1 pipeline already in service, and its 275-Mbbl/d Mariner East 2 pipeline that is under construction.

With the potential to boost Mariner East 2 capacity to 450 Mbbl/d, the company could potentially ship about 770 Mbbl/d of propane and other NGLs to the East Coast for export, consumption or conversion into plastics by petrochemical companies.

Propane prices fall on export drop, decline in crude oil

The price of propane dropped close to a penny per gallon in the week that ended March 24, as pressure was offered by a decline in exports and continued weakness in the crude oil market.

Lone Star pipeline grade propane at Mont Belvieu, Texas, fell 0.70 cent to trade at 61.40 cents per gallon in the week that ended March 24, while non-LST propane lost 1.05 cents to trade at 60.50 cents per gallon. Prices at the hub in Conway, Kan., declined 1.25 cents and traded at 55.20 cents per gallon.

A key factor in offering some pressure on propane prices was a decline in exports of the commodity, which fell 294 Mbbl/d in the week that ended March 17, to 808 Mbbl/d. A record of 1.31 MMbbl/d was set in the week that ended Dec. 23, 2016.