In Permian Buildout – Helping to Solve the Mysteries of Texas, the second Insights in our series leading up to the release of our recurring Permian project report, we discussed the challenges of following the development of pipeline takeaway projects for the Permian basin, and how we are addressing those challenges. In this follow-up analysis, we discuss some of the projects that seem to be moving forward and our view as to how others may not be. In particular, we focus on a key indicator for a developer’s commitment to a project — the acquisition of the right of way needed to develop the project, which is a little-understood process that is laborious to monitor.
As we discuss more fully below, the recent announcement by EPIC Crude to upsize its pipe to a 30-inch pipeline is certainly a positive commercial development, but it may require EPIC to renegotiate its agreements with landowners.
Shin Oak and Grand Prix pipelines have the same announced in-service date. Grand Prix filed its first easement in September 2017, twenty months before its announced in-service date. Shin Oak (under the entity name Breviloba) filed its first easement in October of 2017, nineteen months before its announced in-service date. Similarly, Gulf Coast Express began its right of way acquisition in March 2018, 19 months before its in-service date, and Gray Oak started in August 2018, which is 16 months before its announced in-service date.
How We Are Tracking the Permian Projects
All of the pipeline projects that we are tracking, other than Permian Global Access, are not regulated by FERC. In Texas, there is no statutory or regulatory requirement that the project developers seek or receive approval to construct the pipeline or obtain approval for the routing or siting of the pipelines.
Despite this major difference in regulatory oversight, the commercial/permitting phases of a project are similar. We have grouped these commercial/permitting activities into four phases:
- Phase 1 is marketing, and generally will include scoping the project size based on private conversations with potential shippers, perhaps conducting an open season to solicit additional interest, and almost certainly making a big public announcement about the intent to build the project.
- Phase 2 is planning, which generally includes finalizing shipper support to fix the capacity of the pipeline, conducting initial surveys to find an appropriate route, assessing the need for permits and perhaps filing initial applications, and usually making the Final Investment Decision (FID) to proceed with the project.
- Phase 3 is execution, and that generally entails acquiring the needed rights of way through private negotiations and, if needed, condemnation actions filed in state courts. We are tracking these activities closely, as the rights must be obtained before construction can begin. This phase also includes the filing of a New Construction permit with the Texas Railroad Commission (TRRC) — which does not need to be approved, but which only must be filed before construction can begin.
- Phase 4 is construction, and in addition to actual construction, this phase will usually include the filing of a tariff with either the TRRC or FERC, or both.
While all of these phases are important, we have heavily weighted Phase 3 in our scoring system that reflects the “overall progress” of the projects, because actions taken in this phase are key indicators for whether a project is actually moving forward.
Our Current Assessment of the Projects
In the charts below, we provide our current assessment of the projects in the three categories, NGLs, Natural Gas and Crude. The charts show the projected in-service dates for each of the projects and our assessment of their progress is reflected as a percentage in the caption along with their name.
Voluntary Acquisition of the Right of Way
Four of the pipeline projects we are tracking, Grand Prix Pipeline (NGL), Shin Oak NGL Pipeline (NGL), Gulf Coast Express (Natural Gas) and Gray Oak Pipeline (Crude) have announced in-service dates in 2019. A look at the progress of these projects in obtaining the needed rights of way demonstrates how using this criterion as a measure of progress can help in assessing the viability of the project’s announced in-service date.
Grand Prix filed its first easement in September 2017, twenty months before its announced in-service date. Similarly, Gulf Coast Express began its right of way acquisition in March 2018, 19 months before its in-service date, and Gray Oak started in August 2018, which is 16 months before its announced in-service date.
One of the Permian projects, EPIC Crude, has repeatedly noted that, for much of its route, it will be co-located with its EPIC Y-Grade pipeline. EPIC Y-Grade began acquiring easements in January of this year and has continued right up to this month, with over 500 easements now in hand. A spot check on those easements shows that they were negotiated to include the right to put two pipelines on each landowner’s property. However, the easements that we have reviewed also limited the size of the pipeline to not more than 24 inches. Recently, EPIC crude announced it would be upsizing that pipeline to 30 inches. So, while EPIC may have a jump start on its competition by using the dual pipeline easements, it would appear that this recent upsizing may require a substantial portion of the 500 easements to be amended to allow for the larger pipe.
Condemn When Needed
While we would assume that most pipelines will proceed by acquiring the needed rights of way through voluntary acquisition and not through condemnation, the pipelines do seem to have different approaches as to how to use the condemnation right. While Grand Prix has obtained over 1200 easements, it also filed over 100 notices concerning condemnation actions. These condemnation actions did not start until a couple of months after the voluntary easements began to be recorded. Conversely, Gulf Coast pipeline began filing notices of its condemnation actions the same month as it began its voluntary acquisition and has filed an equal number of notices of condemnation to its voluntary easements.
As noted above, we will be following all of these projects through completion. If you would like to learn more about our upcoming, periodic Permian project reports, which we will deliver outside of our twice-weekly Insights, please contact James Cahalin at email@example.com or click on this link.