Targa Resources Partners LP's credit ratings have been upgraded due to a tronger financial balance sheet and growth in capital spending, according to Moody's Investors Service on Tuesday.
Targa's Corporate Family Rating (CFR) went to Ba1 from Ba2. Moody's also upgraded the company's existing senior unsecured notes ratings to Ba2 from Ba3. The Speculative Grade Liquidity Rating was affirmed at SGL-3. The rating outlook was changed to positive from stable.
"Targa Resources' upgrade reflects the company's strong execution on its growth capital spending, rising cash flows, and declining financial leverage," said Arvinder Saluja, a Moody's analyst.
"The partnership has diversified its business mix and reduced its concentration
in natural gas gathering and processing," he added.
Targa's rating upgrade is supported by its scale and baseline EBITDA generation, strong execution of growth projects, higher proportion of fee-based margin contribution and strengthening credit metrics.
Targa has increased geographic diversification, improved business diversification through entry into crude oil gathering and grown fee-based business (over 60% of operating margin as of June 2014, targeted to grow to two-thirds by end of 2014).
As a number of growth projects have come on line in 2013 and 2014, its distribution coverage, which remained under 1.0x for a portion of 2013, has also improved with the cash flow from these projects.
These positive attributes are tempered by still material exposure to the gathering and processing business, continued weakness in natural gas liquids (NGL) markets, its historically aggressive distribution policies, and commodity price and volume risks.
The positive outlook reflects Moody's expectation that Targa would continue to grow its scale and partnership cash flows by using a prudent mix of equity and debt funding for its projects, and maintain credit metrics in line with its investment grade rated peers while further increasing fee-based business.
Reliance Industries Limited (RIL) and Enterprise Products Partners LP have struck a deal for Reliance to receive ethane exports from a planned Enterprise terminal in the Houston area, starting in mid-2016, sources tell OPIS.
Neither party has confirmed an agreement, but RIL last month announced plans to export U.S. ethane as feed for its crackers in India, highlighting storage and capacity agreements with a North American terminal that was to begin operations in the second half of 2016. That timing syncs with Enterprise's plan to start up a 240,000-b/d ethane export terminal at its Morgan's Point facility on the Houston Ship Channel in the third quarter of 2016.
Enterprise in late July said that it reached a long-term ethane export agreement with an unnamed customer. But during an earnings call held that same day, it declined to offer details when an analyst asked for color on the geography of new customers for the facility.
Separately, it was confirmed in May that chemical producer Ineos would be the terminal's first customer.
RIL seeks to export 1.5 million metric tons per year of liquefied ethane from the U.S., and has ordered six Very Large Ethane Crackers (VLECs) to be delivered in the last quarter of 2016, to move the supply.
Enterprise's ethane export terminal will be capable of loading fully refrigerated ethane at about 10,000 standard barrels per hour. The terminal will be supplied via an 18-mile, 24-inch diameter ethane pipeline to be constructed at Mont Belvieu. Ethane supply contracts will be for 10-years-plus, Enterprise said in July.
Enterprise declined to comment on its ethane export agreements.
"Consistent with our past practice and in accordance with any confidentiality agreements, we do not publicly disclose details of our commercial activities," said spokesman Rick Rainey in an e-mail.
Reliance did not respond to requests for comment.
MarkWest Energy Partners LP announced Tuesday that it plans to expand its Keystone complex in Butler County, Pa., to support growing rich-gas production from the Marcellus Shale and Upper Devonian formations.
The expansion will be supported by new agreements with Rex Energy Corporation and EdgeMarc Energy. As part of these agreements, MarkWest will construct Bluestone III and IV, both of which are 200-million-cubic-feet-per-day (mmcf/d) plants that are expected to begin operations during the fourth quarter of 2015 and the second quarter of 2016, respectively. In addition, the partnership will construct 40,000 b/d of additional de-ethanization capacity and over 20,000 b/d of additional propane and heavier NGL fractionation capacity.
The Keystone complex currently consists of the Bluestone processing and fractionation complex and the Sarsen processing facility, which combined currently provide 210 mmcf/d of processing capacity and 26,500 b/d of fractionation capacity. The Keystone complex is anchored by Rex Energy and in May 2014, MarkWest began operations of the 120-mmcf/d Bluestone II plant and 10,000 b/d each of ethane and propane plus fractionation capacity to continue supporting Rex Energy's growing rich-gas production. In addition to the new Bluestone processing and fractionation plants, the partnership completed a 32- mile purity ethane pipeline connecting the Bluestone facility to Sunoco's Mariner West pipeline project.
In conjunction with additional processing and fractionation infrastructure,
MarkWest continues to develop its rich-gas gathering system throughout Butler
County and surrounding areas in order to support the growth of its producer
When the Cochin Pipeline reversed earlier this year, the Edmonton, Alberta market lost a conduit to carry out 30,000 b/d of propane. Lacking another pipeline alternative, local NGL firms have reluctantly shifted their shipments to rail, but as the winter of 2014-2015 approaches there are signs of a looming bottleneck at the railhead.
When asked what are his major concerns as the U.S. Midwest prepares for the
coming winter, the answer was a surprising "my concern is loading out of Edmonton," answered one NGL trader. Other industry sources said they are concerned about the ability to move NGLs out of Edmonton by rail.
It appears that the interface between the NGL industry and the railroads is not set for smooth operations. In addition to the Cochin loss, NGL production is also growing in Alberta, and the industry and railroads will need to adjust to their increased dependence on each other. If North America sees a repeat of the brutal 2013-2014 winter, the logistics system could be strained to the point of breaking.
In Alberta, NGL producers are seeing exploding production and a rush to build new processing plants and loading racks.
Pembina is building a new 55,000 b/d fractionator in Redwater, Alberta and a new rail terminal in Edmonton. It is spending about $525 million in 2014 and 2015 on the Redwater West rail yard, according to company investor presentations.
Plains is spending more than $500 million to build out the Fort Saskatchewan hub facilities it bought in 2012 from BP. The firm plans to develop the facilities into a major hub for ethane, propane, butane, natural gasoline and crude oil. Announced expansion projects include: building more brine ponds to make use of existing underground storage caverns and building more caverns.to handle ethane; boosting the fractionation capacity 20,000 b/d to 85,000 b/d; and building new truck and rail loading racks. The truck rack is expected to be ready by the first half of 2016, a company investor presentation said. The completion date of the rail rack was not specified.
Plains is spending $215 million on rail terminal projects across its North America network. In Canada it has a total of 250 rail loading spots for all products. Sources tell OPIS Plains is building a new propane rail rack in Edmonton, but that is several years away from completion.
One way Pembina and Plains can avoid product backups is by shipping raw NGL mix on the Enbridge pipeline to Sarnia, Ontario, where it can then be fractionated. The downside to this strategy is that it ultimately deprives the U.S. Mid-Continent of purity product sourced from Edmonton.
Keyera on the other hand, doesn't have that safety valve, sources tell OPIS. It needs to handle its own growing supply of product. In January, it announced plans to add 35,000 b/d of C3+ fractionation capacity at its Fort Saskatchewan plant by the first quarter of 2016. This is in addition to the 30,000 b/d de-ethanizer currently under construction and the existing 30,000 b/d fractionator already at the site. The de-ethanizer is expected to be running later this year. The firm is also expanding its underground storage wells, planning to drill a 15th well later this year. In February, Keyera announced plans to build a $95 million 32-spot propane rail loading terminal in Josephburg. The terminal is expected to be running by the second half of 2015. Keyera's existing rail terminal can handle 40 cars.
Keyera was not able to respond to a call for comment.
Ensuring that the rail loading racks are ready to handle the new production is the NGL industry's responsibility. And based on the timelines announced by these firms, little is expected to be ready by this winter. That said, can the railroads do their part?
The Edmonton market has always used rail service to move out NGLs, but that was a secondary transport option. Now it is a primary conduit for purity product.
On the surface, replacing the Cochin's 30,000 b/d of take away capacity with
rail service doesn't appear to be difficult. That's the equivalent of 42 30,000 gallon tank cars per day.
But, shipping out product by rail is not as easy as opening a pipeline valve and
turning on the pump. Rail shipments face more layers of logistics.
The railroads need to deliver empty cars, correctly position each one at a loading rack and then pick each up in timely fashion. After that, the railroad needs to haul the cars to a classification yard where they are sorted and added to outbound trains. If, on that journey, the car needs to be transferred to another railroad, that adds more time and complexity to the process. Once the car has been delivered and emptied, the process reverses itself. On top of all of this is the fact that railroads deliver many different types of freight -- propane is a part of their larger mix of business.
The reality is that a rail rack with 40 spots commonly loads a half to three quarters of that volume per day, one source explained.
If the railroad is late switching cars, a backlog forms that is hard to work through. The Canadian railroads took months this spring to work through a backlog of grain shipments that developed during the winter. In Canada, railroad operations slow during the winter when bitter cold weather means trains need to switch cars more carefully and it can be difficult to maintain air brake pressure. When other parts of the railroad are behind, like the grain business, that affects the entire system. The result is it can be tricky to meet a 42-car turn each day.
Railroads say they are trying to improve their service and also trying to incentivize shippers to move product early so there's less of a crunch in the middle of the winter.
The CN Railway, for instance, has a tariff that favors propane shipments made
from March to November. Between December and February, the rates are higher. A call to CN Railway for comment was not returned by presstime.
One railroad source told OPIS that if all the loading racks are ready to fill cars, then they have a better chance to keep the traffic flowing.
But, the railroads also have to deal with the delivery side of the equation. If a consumer isn't ready to receive the cars, that again slows the process.
What if there's a mild winter? Railroad operations could be a bit easier, but with growing NGL production, their takeaway capacity will still be needed.
Regardless of what the winter brings, the issue is the ability for the railroads
and NGL industry can work together in Alberta. "They are saying the right
things," one trader said. "The proof will be in the pudding."
Biofuels Power Corporation said that it has signed a letter of intent with
ThyssenKrupp Industrial Solutions (Africa) and Liberty GTL, Inc. to build a
small-scale gas-to-liquid demonstration facility in Houston, Texas (GTL Pilot
The parties have established a non-binding target date to complete installation
and commissioning of the GTL Pilot Plant on or before Dec. 31, 2014. The purpose of the GTL Pilot Plant is to commercially demonstrate converting stranded natural gas resources to synthetic crude oil.
BFLS will operate the GTL Pilot Plant for the 2-year demonstration. ThyssenKrupp will provide technical services and contribute a previously operating auto-thermal reformer pilot plant of proven design (ATR), which will be used to generate synthesis gas feedstock for the production of synthetic crude oil.
Liberty will provide intellectual property and operating know-how regarding
crude oil synthesis along with the relevant catalyst supply.
The Liberty technical team is also credited for designing the FT (Fischer Tropsch) Reactor which will convert the synthetic gas to synthetic crude oil.
The GTL Pilot Plant will be assembled at the Houston Clean Energy Park, which is an industrial estate owned by BFLS.
The abundant supply and low cost of natural gas produced from unconventional
shale resources enhances the opportunity to profitably convert natural gas to
higher value liquid fuels.
The focus of the GTL Pilot Plant will be to optimize design and operability of
small-scale gas-to-liquid facilities capable of converting 5 - 10 million cubic feet per day of natural gas into approximately 500 b/d of synthetic crude oil.
Building on Liberty's previous engineering studies completed by ThyssenKrupp in 2013, BFLS and Liberty are in the process of completing engineering on a 500 b/d reference plant design with the goal of deploying multiple units in North America in the future.
This process is scheduled to be completed in the coming weeks.
BFLS believes that gas to liquids projects of this size may be attractive to
operating companies confronted with curtailing production or, in the extreme
case, ceasing production due to capital cost barriers related to expansion of
natural gas gathering, processing and transmission infrastructure.
These "stranded gas wells" would be released for production if the planned GTL units could process the natural gas immediately after completion of the well.
Enterprise Products Partners reported Q2 net income growth of 17% as strong gains in the company's NGL pipelines and services business offset an essentially flat quarter for its other business segments.
The midstream firm reported Q2 2014 net income of $647 million, compared to year-earlier income of $553 million. The gains were led by the NGL Pipelines & Services segment, which saw gross margin increase year-on-year 25% to $681 million.
Enterprise's natural gas processing and related NGL marketing business saw Q2 gross operating margin remain near flat year-on-year at $266 million. Gains in gross operating margin for the company's natural gas processing business were offset by decreases in Enterprise's NGL marketing business, which saw lower margins and the effects of the 10-day outage at its Houston LPG export terminal. Gross operating margin from natural gas processing plants increased primarily due to higher fee-based processing volumes and equity NGL production.
Gross operating margin from the partnership's NGL pipelines and storage business increased $73 million, or 39%, to $261 million in Q2. The Mid-America and Seminole NGL pipeline saw gains thanks to higher revenues from deficiency fees and an increase in tariffs, which was partially offset by higher operating expenses. Combined volumes were mostly flat at 983,000 b/d. The South Texas NGL pipeline saw volume increase 78,000 b/d thanks to increasing production from the Eagle Ford Shale. The ATEX ethane pipeline transported approximately 44,000 b/d of ethane during the Q2 of 2014.
Enterprise's NGL fractionation business saw gross operating margin rise 66% year-on-year to $154 million, thanks to a 179,000-b/d increase in volume as Fractionators VII and VIII began commercial operations during the second half of 2013. Fractionation volumes for the Q2 of 2014 increased 25% to a record 845,000 b/d compared to the same quarter in 2013.
The Petrochemical & Refined Products Services segment saw gross margin remain flat at $162 million year-on-year. Margins in the propylene business saw gains as volumes remained flat year-to-year at 71,000 b/d. But margins in the octane enhancement and high-purity isobutylene businesses were down for the quarter. Other segments of this business were mostly flat for the quarter.
The Onshore Natural Gas Pipeline & Services saw a $5 million gain in gross operating margin to $203 million. Total volume transported slipped from 13.3 trillion Btu per day to 12.6 trillion Btu per day. The Texas Intrastate gas systems and the company's natural gas marketing services saw gains thanks to higher fees and sales margins. But gross margin at Enterprise's Haynesville, Jonah and Piceance Basin gathering systems fell due to lower volumes and reduced drilling activity.
Enterprise's Onshore Crude Oil Pipelines & Services unit saw gross operating margin fall $13 million to $184 million in Q2. Total volume transported increased 200,000 b/d to 1.3 million, thanks to gains in the South Texas, West Texas and Eagle Ford pipeline systems. But margins at the crude oil marketing unit took a hit due to substantial decrease in regional price spreads for crude oil.