The Permian Boom -- Following In The Very Footsteps Of The Bakken Boom -- June 1, 2018 -- A Reader Smells A Rat

Updates

June 2, 2018: see story below in which a writer suggested Kinder Morgan got a $7.4 billion payout for a $550,000 investment. A reader did some of his/her own analysis, after "smelling a rat." This is the reader's entire reply, which is probably a whole closer to the truth than Nick Cunningham's analysis. Remember, he has the same access to information as the rest of us. LOL.

So, there's a May 30 article by Nick Cunningham for OilPrice, which says that Kinder Morgan had only paid $550 million for the existing TransMountain pipeline back in 2007.  His theory was that Trudeau overpaid in the recent taxpayer-funded purchase.  And I'm sure that'll be widely quoted.

I double checked the DAPL numbers, and the original estimate was about $4 billion.  That's close to the price Trudeau paid.  So, then I grabbed my trusty bar room napkin -

• DAPL is longer, but the capacity is about what the increased volume in TransMountain would be ~ half a billion barrels a day total for DAPL and an increase from 300,000 to 800,000 bpd for KM
• DAPL was 99.9 % on private land
• KM had how many tribes to contend with - 50 some?  And you bet your sweet bippy, that's 50 big checks.  The City of Vancouver alone was going to get a billion $.  (Or maybe already has received part/all?)
• I seriously doubted the purchase price was that low - but regardless that was over 10 years ago.  I had a suspicion that whatever original purchase price was cited, Cunningham may have neglected to put a value on debt assumed by the acquiring company.  If I give you $100,000 for your house and assume a $1,000,000 mortgage, obviously that's a $1.1 million transaction - and I've seen that mistake/omission far too often.

So, I had to check to see what the original deal was.  It was 2005, not 2007 - and his numbers were way off.  It was not a stand-alone acquisition, so there's no telling how it was treated for accounting purposes.  (Especially since I know nothing about Canadian accounting).  I can easily imagine that since the existing TM pipeline was 50 years old, that it may have had a much lower depreciated book value.

Anyway - my point is that Trudeau didn't pay a much different price for TM than what DAPL was expected to cost.  KM tossed in the existing pipeline, terminal, etc. and that would increase the value compared to DAPL's barebones pipeline number.  Obviously, there's still an ongoing construction cost for TM, but my understanding is that the pipe is bought and paid for - so it'll just be labor and legal fees.  (;>)  Some of the high-dollar contracting/labor/consulting may also be prepaid - not unusual for big construction projects

The following article is old enough that the TM pipeline isn't really named as such, but it has to be the same critter, because it's the only pipe between Alberta and BC.

I don't have a horse in this race, but the bad reporting on DAPL really raised my hackles - and it looks like there's more of the same going on in Canada.

Kinder Morgan and Terasen Combine to Create a North American Energy Leader

Original Post

Can't wait to spend the money: North Dakota floats idea of spending Legacy Fund money. You know, that Fund that was put in an Algore lockbox. 

Trans Mountain Pipeline Expansion: tea leaves suggest this will not go well even now, owned by the Canadian taxpayer, but the word on the street is that Kinder Morgan did incredibly well.

Kinder Morgan bought the project for $550,000 some years ago, and although the final numbers are yet to be determined, it appears Kinder Morgan got a windfall of somewhere between $4.7 billion and $7.4 billion. Off the top of my head; can't recall for sure. Easily found for those interested. I will come back to it later. Why would Justin Trudeau pay so much for one pipeline? -- It would n't even add much to the overall Canadian economy, nor would it really do much for the Canadian sands. On paper, it makes no sense. At least that's what some are saying. If I can find the link again I will post it.

But this is why:

First it was the Keystone XL. Then Enbridge Line 3. Energy East. Then Trans Mountain Pipeline.  In an earlier post I had mentioned three of those four. I had completely forgotten "Energy East," perhaps the granddaddy of them all. 

From wiki:

The Energy East pipeline was a proposed oil pipeline in Canada. It would deliver diluted bitumen from Western Canada and North Western United States to Eastern Canada, from receipt points in Alberta, Saskatchewan and North Dakota to refineries and port terminals in New Brunswick and possibly Quebec.

The TC PipeLines project would convert about 3,000 kilometres of natural gas pipeline, which currently carries natural gas from Alberta to the Ontario-Quebec border, to diluted bitumen transportation. New pipeline, pump stations, and tank facilities would also be constructed.

The CA$12 billion pipeline would be the longest in North America when complete. The project was announced publicly on August 1, 2013, while the Keystone XL pipeline proposal was being debated. In October 2014, TransCanada Pipelines filed its formal project application with the National Energy Board.

At the same time a number of groups announced their intention to oppose the pipeline.[2] TransCanada cancelled the project on October 5, 2017.

It was obvious Trudeau was never to prevail against faux environmentalists in eastern Canada, but if he couldn't even get a win in western Canada, he could see the end of Canada's fossil fuel industry. Hyperbole? Sure. Possibility? Sure.

It looks like greenfield pipelines in Canada and the US have little chance of success unless they do not cross state lines, provincial lines, or international boundaries.

But Kinder Morgan did just fine, thank you. They get paid regardless. And yes, that's not a typo. They "get" paid, regardless. They got 30-year commitments from shippers to pay them even if the pipeline did not get built.

Disclaimer: this is all based on articles I've read over the past couple of days. It's only what I recall and there will be many factual errors. None of them on purpose. Once I find the links again, if I'm interested in doing so, I will update / correct this post.

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RBN Energy: rising Permian NGL production drives the need for new pipes. I'm so glad I followed the Bakken as closely as I did starting from the very beginning. The Permian boom is following exactly what we saw in the Bakken boom. For investors, God is giving us a second chance to get it right. LOL.

With Permian production of natural gas liquids (NGLs) on the rise and available pipeline capacity shrinking, midstream companies are in advanced stages of developing projects that — if built on their current schedules — would roughly double the 1.2-MMb/d of effective NGL takeaway capacity in place today within the next 18 months or so. Much of the planned capacity is backed by long-term commitments from Permian producers anticipating continued growth in production of crude and NGL-rich associated gas, especially in the play’s Delaware Basin. Still, the pace of NGL pipeline projects in the Permian begs the question, is all that incremental capacity needed? Today, we continue our series on the NGL takeaway challenges facing producers and processors in cowboy country.