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Energy Transfer executives see Rover Pipeline in home stretch

Energy Transfer Partners' beleaguered Rover Pipeline natural gas project is expected to be in service by the end of November or early December, with full commercial service in January, company executives said Wednesday.

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Phase 1A of Rover -- from Cadiz to Defiance, Ohio -- is nearly done, with completion expected by the company in the coming days, executives said during a second-quarter earnings conference call. When finished, Rover will seek US Federal Energy Regulatory Commission permission to place those facilities into service.

Phase 1B is awaiting FERC approval for one directional drill. With that approval in hand, the drill should be completed in about 40 days, and in-service authorization will be sought immediately after that, executives said.

Rover Phase 2 is held up at FERC as well.



"Assuming quick resolution by FERC regarding Phase 2, we expect to be in service by the end of November or early December with full commercial service in January," Energy Transfer CFO Tom Long said.

Rover has faced regulatory setbacks after drilling releases into Ohio wetlands and demolition of a farmhouse that had been eligible for listing on a national historic registry. FERC initiated investigations related to both matters and ordered a stop to some directional drilling. The Ohio EPA has also proposed fines related to environmental mishaps and ordered remediation. And West Virginia regulators last month halted some operations in light of erosion and runoff problems.

Any signoff to bring parts of the project into service will require first satisfying FERC. The agency on July 12 gave Rover a substantial list of environmental restoration work it would require before allowing Mainline A of the project to enter service.

In addition, FERC has said that prior to authorizing future HDDs, commission staff "anticipates the development of a set of protocols to prevent future drilling and mud contamination."


CLEANUP TO 'RESOLVE THEMSELVES PRETTY QUICKLY'


Matt Ramsey, Energy Transfer's chief operating officer, said Rover has been working with Ohio EPA and fully complying with its order for a cleanup project at the Tuscarawas River where an inadvertent release of drilling mud occurred. Cleanup is expected to be completed by mid-August, he said.

"Those issues are going to resolve themselves pretty quickly," Ramsey said.

The drilling mud discharge contained diesel fuel of an unknown origin.

Energy Transfer maintains it does not know where the diesel could have come from. ETP executives do not expect FERC's investigation into the matter to hold up bringing Rover into service, they said Wednesday.

In one positive development for the Rover project Wednesday, West Virginia's Department of Environmental Protection lifted a cease and desist order it had issued in mid-July halting work on two supply laterals and a compressor station in Doddridge and Tyler counties. An inspection Wednesday determined that violations had been corrected, the DEP said. The agency had previously flagged failures to maintain erosion control devices needed to keep sediment out of waterways.

Energy Transfer recently announced the sale of a large stake in Rover to private equity firm Blackstone for $1.57 billion. Closing of the deal is not dependent upon the full in-service of Rover, executives said. Closing with Blackstone is expected in October.

Construction of the Rover-related Revolution project is expected to be completed during the fourth quarter, executives said Wednesday. The Revolution Pipeline originates in Butler County, Pennsylvania, and will extend to ETP's Revolution Plant, a new cryogenic gas processing plant in Western Pennsylvania.


MARINER 2 DRILL APPROVALS


Energy Transfer's Mariner East 2 NGL pipeline project also has been bedeviled by regulatory and/or environmental issues. According to Long on Wednesday, about 80% of the pipeline has been strung and more than 70% has been welded. More than half of the pipeline has been lowered into its trench and backfilled.

Long said Wednesday that a halt on horizontal directional drilling in Pennsylvania instituted in July had been partially resolved.

"Over the last several days, the [Pennsylvania Environmental] Hearing Board has authorized ME2 to proceed with 16 drill locations," he said. "We are working for approval to complete the remaining drills," he said of the 39 drill sites where works remains stopped.

Mariner East 2 is expected to be in service during the fourth quarter, according to Energy Transfer.

The company has been in talks with potential partners that would provide capital for Mariner East 2 through a joint venture. Mackie McCrea, ETP's chief commercial officer, said the company prefers a partner in the project that would bring long-term demand charges or long-term purchases.

Energy Transfer has been working on extending and restructuring "the vast majority" of agreements related to Mariner East 2. Rover is key to Mariner East 2 as well as the Revolution project, executives said.

The company is looking forward to a stronger balance sheet as these and other projects come online and begin generating revenue, and leverage comes down, executives said. Once earnings catch up with three years' worth of project funding, its equity overhang will go away and there will be a "totally different balance sheet," Long said.

During the second quarter, Energy Transfer Partners net income was $292 million, and adjusted EBITDA was $1.6 billion. Adjusted EBITDA increased $229 million compared to the year-ago quarter, "reflecting significantly higher results from the midstream and crude oil transportation and services segments," the company said.

--Joe Fisher, joe.fisher@spglobal.com

--Maya Weber, maya.weber@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com