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Permalink Reply by Jack Straw on December 20, 2012 at 5:32am

RE: "Will a pipeline company avoid the fields with a large amount of drain pipe or is point A to point B at any cost how a pipeline company think." 

The pipeline company will likely take the path of least resistance (expense), unless another path is explicitly stated (mapped) in the agreement or its ammendments. I consider that a pipeline ROW should be the most complicated and involved document you ever negotiate. The impact and the commitment is essentially forever - and you only have one chance to get it right.

The agreement a pipeline opreator initially presents to a Landowner is totally lopsided in favor of the pipeline company. Landowners lack the experience and knowledge to successfully negotiate an equitable agreement. It is my opinion that no one should ever sign a pipeline ROW without first consulting an Attorney with O&G knowledge.

All IMHO, and nothing I stated should substitute for advice from a qualified Attorney.

JS

 

 

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Permalink Reply by Jack Straw on December 21, 2012 at 5:52am

It is interesting to note that many of the Midstream pipeline companies are set up as MLPs (Master Limited Partnerships). These MLPs construct pipelines using monies supplied by individual investors, pension funds, mutual funds, insurance companies, etc. who purchase units in the partnerships. These MLPs pay out distributions to the unit holders. Below is a list of some of the pipeline MLPs, along with their current percentage annual distribution:

Buckeye Partners   8.7%   

Regency Energy Partners   8.6%   

Atlas Pipeline Partners, L.P.   7.5%

Williams Companies   7.00%  

MarkWest Energy Partners, L.P.   6.8%

Kinder Morgan Partners   6.4%

As can be seen, there pipeline companies are quite profitable, to the point that they can make highly attractive distributions to their unit holders.

I have read where the modern coated steel pipeline has an anticipated life of 80 years; these are long lived assets.

Indeed, the costs of construction and installing a pipeline are high; however, it appears that this business is quite profitable (as can be seen by the attractive distributions provided to ordinary investors). Also, there appears to be little financial risk associated with the industry (when have you heard of one going bankrupt?). The pipeline companies typically do not construct a pipeline until (and unless) they have lined up customers who will commit to using the pipeline (perhaps one reason why the build out of infrastructure in the Marcellus/Utica is so slow).

Indeed, the costs of construction and installing a pipeline are high; however, it appears that they are sufficiently profitable that the pipeline costs are rather quickly paid off - otherwise, they could not provide such attractive yields to investors.

 

All IMHO,

                   JS

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Permalink Reply by Trapper on December 22, 2012 at 8:22am

Interestingly , i received a pipeline safety pamphlet in the mail today from Kinder Morgan.

There is a Tennessee Pipeline that runs through some of my land. Tennessee Gas Pipeline Company is one of eighteen different natural gas transmission companies listed with emergency contact phone numbers. These are referred to as business units or entities of Kinder Morgan.

I have received calendars , etc. from Tennessee Gas Pipeline in the past , however , this is the first communication from Kinder Morgan.

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Permalink Reply by Jim Litwinowicz on December 22, 2012 at 10:05am

Saw where the a rocky Express line was just completed at a cost of $6.8 Billion and now it is already obsolete as we will not be importing gas from the Rockies.  We may even use the line to export gas to the Rockies and even into California. The partners are probably losing money on this one.

And the line from E Pa to Philly and Wash is now on hold as they seem to have issues getting contracts with such low prices. This industry is changing so rapidly it hard to keep up with it.

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Permalink Reply by Trapper on December 21, 2012 at 3:45am

Jack,

Does the 8% expense of obtaining ROW include Landman fees associated with this , or is this an average paid to landowners?

@$100K/inch mile I come up with $1.515 per inch foot expected for ROW acquisition.

Does this suggest we should target this amount when negotiating for these easements?

Thanks again Jack for coming up with some more very interesting data! We really appreciate all you do for us out here sir.

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Permalink Reply by Jack Straw on December 21, 2012 at 6:33am

The 8% for ROW was a generic (average?) number, which I would expect to include a number of factors (including surveying, landman, permitting, and compensation to landowner).

Also, the figure I initially presented of $100K per inch-mile does not appear to be accurate for the terrain found in the Marcellus/Utica. $200K - $300K inch-mile would seem to be a more accurate current estimate of costs (as reading all the responses to my initial posting suggest).

The figure I initially presented of $100K per inch-mile was both dated and included data that was likely highly weighted towards the Great Plains (flat) topography and goat pasture.

Fortunately, the internet, and the rare forum such as this one, have allowed us access to information and knowledge that otherwise would have been lost to us; and, it allows us to freely share that information. Today, it is much more difficult to hide things, we are not limited to what a landman might tell us – we can squirrel out the facts, we are not limited to miss-information.

The figures that I have heard that the more diligent are getting for ROW are $2-$3 per inch-mile (plus damages). The higher end is from what a company received (with the assistance of an experienced negotiator).

The people who receive the highest compensation tend to be bound by agreements that include a confidentiality clause. The pipeline companies strive to keep the numbers low by keeping knowledge of the higher compensations secret.

All IMHO,

                    JS

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