Tuesday, Natural gas and propane trading company DCP Midstream Partners LP (DPM), which operates and owns 70% of Collbran Valley Gas Gathering, LLC., or CVGG. stated that CVGG has entered into definitive agreements to construct gathering pipeline, compression and liquid handling facilities, and support the increasing need for natural gas infrastructure in the Collbran valley area of the Piceance basin, located in western Colorado. The project will be accretive based on stable, fee-based contracts with long-term dedications. The expansion is planned to be partly funded by debt through bank credit facility.
The gathering pipeline, which is approximately 20 miles of 24 inch diameter, and proposed to be constructed at a cost of $150 million, will have throughput capacity of over 600 million cubic feet per day and is supported by long-term acreage dedications from plains exploration and production (PXP) and Delta petroleum, and a long-term dedication from a subsidiary of Enterprise products partners L.P, covering gas it has the right to gather from a specified, dedicated area within the Piceance basin. PXP CV pipeline, LLC., a 50% subsidiary of PXP owns 25% stake in CVGG while delta owns 5% stake.
CVGG will invest approximately $100 million in 2008-2009 to achieve throughput capacity of approximately 300 million cubic feet per day by the second quarter of 2009. The remaining investment of approximately $50 million will be spent in 2010-2013 primarily in compression equipment as production volumes increase, providing total throughput capacity in excess of 600 MMcf/d.
The new CVGG gathering pipeline will interconnect with a new gathering pipeline that will be constructed by Enterprise. Upon completion of both the CVGG gathering pipeline and the Enterprise owned line, natural gas on the CVGG gathering pipeline will be delivered to Enterprise at the interconnect, for further transfer into Enterprise's meeker gas processing facility. As a result of this arrangement, CVGG will decommission processing services but provide treating and compression services at its Anderson Gulch facility in 2009.
CVGG will receive gathering and compression fees as compensation for the system expansion under terms ranging from 20 years to life of lease. Through 2016, CVGG will continue to receive existing processing fees from its shippers on a maximum volume of 190 MMcf/d. Current processing capacity at Anderson Gulch is 120 MMcf/d. CVGG will also benefit from reduced operating expenses once the Anderson Gulch facility ceases processing services.
DCP Midstream Partners closed Tuesday's regular trading at $24.00, up $0.27 or 1.14%, on a volume of 96,582 shares on the NYSE.
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