September 12, 2008

Tulsa’s Oneok Partners Plots $70 Million Pipeline Lateral

By Kirby Lee Davis

Oneok Partners will build a $70 million-plus lateral to the Overland Pass Pipeline now under construction, officials said Wednesday afternoon.

Overland Pass, a $433 million, 760-mile joint venture between the Tulsa energy companies Oneok Partners and Williams, will deliver 110,000 barrels of Rocky Mountain natural gas liquids daily from Opal, Wyo., to Conway, Kan., a primary NGL market center. It should become operational in the third quarter, with potential to boost its capacity to 255,000 barrels.

Wednesday's 125-mile extension, called the Denver-Julesburg Basin Lateral Pipeline, will transport up to 55,000 barrels from five processing facilities in that northeastern Colorado basin to Overland Pass. Projected to cost up to $80 million, that 6- to 12- inch lateral pipeline should begin operation early next year.

Oneok Partners announced supply commitments for up to 33,000 barrels per day of raw NGL from the existing plants, with potential for another 10,000 barrels daily from new drilling and plant upgrades in the next two years.

"Signing up clients is the best long-term benefit," said analyst M. Jake Dollarhide, since it translates into guaranteed revenue.

"Today is just further proof that they see this joint venture with Williams out of the Rockies as a very important building block and that they're going to do everything that they can that bolster that product," said Dollarhide, chief executive of Longbow Asset Management Co. of Tulsa.

This D-J Basin Lateral marks the second add-on to Overland Pass. The Piceance Basin Lateral, a 150-mile joint venture between Oneok Partners and Williams expected to cost $110 million to $140 million, will connect producers in the natural gas-rich Piceance Basin to Overland Pass. It should begin service in the second quarter.

Williams has dedicated to Overland Pass about 60,000 barrels of its daily NGL production from two Wyoming plants, as well as 30,000 barrels daily from two plants to the Piceance lateral.

Oneok Partners, which is managing construction, will serve as the Overland Pass operator. It will own 99 percent of the joint venture, known as Overland Pass Pipeline Co., although in the first two years of

operation Williams has the option to increase its stake to 50 percent and take over operations.

The D-J Basin lateral is expected to become part of Overland Pass in the near future, Oneok Partners said Wednesday.

Besides these projects, Oneok Inc.'s master limited partnership has invested $230 million-plus to expand and upgrade its NGL distribution pipelines and existing natural gas liquids fractionation capabilities at Bushton, Kan.

It has completed the first phase of the Bushton fractionator, providing 80,000 barrels per day of capacity. When finished in the third quarter, the second phase will add 70,000 barrels a day.

Finishing trading before this announcement, Oneok Partners units closed Wednesday 3 cents lower at $57.80. Oneok Inc. shares jumped $1.35 to $41.23. Williams rose 41 cents to $26.09.

"I think Oneok Partners is a growth asset in Oneok," said Dollarhide, pointing out the access to valued Rocky Mountain natural gas production sets it off from most other MLPs. "OKF units have performed much better than Oneok's (stock). Not today, but over the last three months."

In that period Oneok Partners units slipped from the $62 area to $58, said Dollarhide, while Oneok Inc. shares fell from $50 to $40.

"That's an incredible comparative performance versus not only the MLP peer category but also the entire energy market," he said. "Energy's just been killed. Apache's gone from $140 to $100. There's been some big-time drop in prices."

Originally published by Kirby Lee Davis.

(c) 2008 Journal Record - Oklahoma City. Provided by ProQuest LLC. All rights Reserved.