Sanchez Energy, Targa building south Texas gas plant, pipeline

Sanchez Energy Corporation and Targa Resources Partners LP have announced they plan to build a new cryogenic natural gas processing plant and associated high pressure gathering pipelines in the Eagle Ford Shale.

The processing plant, which will be located in La Salle County, Texas, is expected to have initial capacity of 200 MMcf/d, with the ability to increase to 260 MMcf/d.

In connection with the joint venture agreements, Sanchez Energy intends to invest approximately $115 million and receive a 50 per cent ownership interest in the plant and the approximately 45 miles of high pressure gathering pipelines that will connect its existing Catarina gathering system to the plant.

Targa will hold all of the transportation capacity on the pipeline, and the joint venture will receive fees for transportation.

The new midstream joint ventures are expected to provide significant operational and commercial benefits and improve yields, increase net-back prices, and lower the gathering and transportation fees SN currently pays for its Catarina production.

Sanchez Energy has firm capacity for 125,000 Mcf/d of plant processing and associated pipeline capacity for the first five years and has dedicated the Catarina acreage and all production developed during the 15 year term.

Sanchez Energy has the option to deliver additional volumes and commit additional acreage to the new plant as production increases.

“These South Texas midstream joint ventures are a key part of our strategy aimed at capturing opportunities across the hydrocarbon value chain,” said Tony Sanchez III, CEO of Sanchez Energy.

“Our participation in the joint ventures and commitment to anchor these projects are expected to result in access to attractive midstream assets that are central to SN’s major development activity in South Texas.”

Sanchez says the modern plant design is expected to deliver better liquids yields and lower processing fees, resulting in lower operating costs, higher net-backs, and greater price realization on our natural gas liquids revenue stream.

” The joint ventures are expected to also improve our access to end markets, including the developing Mexico and global LNG markets, and provide opportunities to increase revenue through utilization of the new midstream system to transport and process third party volumes,” he said.

Sanchez says that as the project develops, the partners intend to explore potential alternative financing or other options for the joint ventures to maintain their liquidity, while also exploring whether there are any mutually beneficial funding strategies with Sanchez Production Partners LP.

“We look forward to updating the investment community as our plans advance,” said Sanchez.

The natural gas processing plant and gathering pipelines will be designed, built and operated by Targa. The plant is expected to be operational by early 2017.