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99 Years of Continuous Quality Service
Market Presentation
Jerry Morris VP Bus. Dev. & Strategic Planning
Donny King Project Manager Bus. Dev.
Dale Sanders Project Manager Bus. Dev.
Organizational Overview
AIG Highstar
Southern Star
Central Pipeline
Southern Star is wholly owned by AIG Highstar
Organizational Overview
Western Frontier Pipeline Company, LLC
•AIG Highstar Portfolio (March 2003)
–Eight investments: average size $42MM; 84% energy, 16% transportation
–Energy: natural gas storage, interstate natural gas pipeline, power generation, waste-to-energy
–Transportation: logistics, asset management, and construction materials
AIG Highstar Fund Summary
AIG Highstar Capital, L.P. (“AIG Highstar”) Fund Summary
•Private equity fund formed to make structured equity investments in infrastructure projects and operating companies
•$406 million in capital commitments (approx. $330 million committed as of March 2003)
•Limited partners include multi-national corporations, financial services companies, and industry-focused funds
•Sponsored by AIG and managed by AIG Global Investment Corp. (AIGGIC)
–AIG is one of the world’s leading U.S.-based international insurance and financial services organization
–AIG Global Investment Group, AIGGIC’s parent, has $329 billion in assets, including over $53 billion of external client assets, under management.*
AIG Highstar Fund Summary
* Source: AIG Global Investment Corp. and its affiliates. AIGGIG is a holding company whose subsidiaries and investment affiliates provide asset management services (the "AIGGIG Companies"). The assets under management for AIGGIG refers to assets advised or sub-advised by AIGGIG Companies. Assets sub-advised to third party managers are not included in this report, but will be available upon request.
Organizational Overview
AIG Highstar
Southern Star
Central Pipeline
Southern Star is wholly owned by AIG Highstar
Organizational Overview
Western Frontier Pipeline Company, LLC
Operational Overview
Southern Star Central Pipeline is a FERC-regulated interstate natural gas pipeline company providing transportation and storage services in seven states in the central U.S., including major metropolitan areas in Kansas and Missouri
Transportation capacity of approximately 2.3 Bcf/day On-system working gas storage capacity of 43 Bcf Assets:
– 6,076 miles of mainline, branch, and storage pipelines
– 41 compressor stations 223,916 HP
– 8 on-system storage fields
– 31 Pipeline Interconnects Headquartered in Owensboro, Kentucky
– 457 total employee complement 15 Operating Districts
– 330 field employees
Overview
Operational Overview
Southern Star Central Pipeline Map
Organizational Overview
AIG Highstar
Southern Star
Central Pipeline
Southern Star is wholly owned by AIG Highstar
Organizational Overview
Western Frontier Pipeline Company, LLC
S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Western Frontier History• Filed with FERC October 2001
• Design 540,000 Dth/day
• Cheyenne Hub to Mid-Continent
• 400 Mile 30” Pipeline
• Financial Distress of Previous Parent Forced Project to be Shelved
• FERC Filing Withdrawn in June 2002
• AIG Highstar Acquired Southern Star Central & Western Frontier in November 2002
• Financial Capabilities now Stronger than Ever
• Open Season Announced August 18th 2003
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Reasons For Suspending the Project
– Recession
– Cautious Capital Markets
– Enron debacle
– Williams Communications demise
– Williams overall financial woes
Current Status
– Western Frontier is Back
– Financially Capable of Implementing Project with Market Support
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Challenges Drilling Timing - Environmental Constraints Issuance of Drilling Permits – originally a 75 day process currently taking
175 days Producers Subscribing to Capacity in today’s market for 10 year terms State Commissions Lack of Risk Management Services FERC Certification Process Short Term Outlook on a Long Term Market Place
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Opportunities Wyoming Pipeline Authority (WPA)
– Production Aggregator
– Risk Management State of Wyoming
– 700-750 MMcfd Royalty Gas Potential
• State Lands (2 Section in Every Range)
• 50% of all Federal Royalty
• Severance Tax In-Kind (Legislative Action Required)
• AdValorem Tax In-Kind (State Constitutional Amendment Required) Competitive Pipeline Alternative in the Rockies Gas Price Volatility Nation Wide Declining Supply Deliverability in the Mid-continent & Canada Tremendous Production Growth Potential in the Rockies Substantial Work Already Completed on Western Frontier
Energy Information Administration Natural Gas Monthly October 2000 Quote for Rocky Mountain Region “Expanding coal-bed methane production has outpaced the development of long-haul capacity to carry the gas to end-use markets. Capacity constraint problems exiting the production areas have resulted in the region having the lowest average natural gas spot prices in the nation.”
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Market Opportunity?
Northeast
Gulf Coast
West CoastRocky
Mountain
Southwest
Mid-continent
Offshore
50.8
15.7
24.2
12.4
27.7
40.6
3.2
Alaska
8.8
Total U.S. Natural Gas Proved Reserves: 183.4 Tcf
Dry Natural Gas Reserves as of 12/31/01(trillion cubic feet)
Source: EIA
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Rockies Production Growth “Production in Wyoming totals about 4.2 Bcfd now
and if environmental and regulatory delays can be cleared, could grow to in excess of 6 Bcfd over the next 5 years”
Wyoming state budget is “heavily dependent upon revenues received from mineral production produced from state & federal lands. During the past 5 years, natural gas production has grown almost 50% in the state, with limited additions to the infrastructure to export growing production”
Source: WPA GD 7/9/03
Sacramento Basin
San Joaquin Basin
Uinta/Piceance Basin
Williston Basin
Western CanadaSedimentary Basin
Green River Basin
San Juan Basin
Raton
Permian Basin
Powder River Basin
Denver-Julesberg Basin
Hugoton
South Texas Basin
Anadarko/ Arkoma
Illinois Basin
Gulf Coast Basin
East Texas/North Louisiana Basins
Black Warrior Basin
Michigan Basin
Appalachian Basin
Scotian Basin
3,000
6,000
9,00012,000
15,000
0
= Direction of Flow
= Bi-directional
Capacity (in Million Cubic Feet per Day) as of June 2002
Source: Energy Information Administration, GasTran Gas Transportation Information System
Major Natural Gas Producing Basins and Pipeline Transportation Corridors to Market Areas
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Hugoton EmbaymentKansas, Oklahoma, Texas
-
500,0001,000,000
1,500,0002,000,000
2,500,0003,000,000
3,500,000
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03Dai
ly G
as P
rod
uct
ion
(M
cf/d
ay)
Total Production Change
1 Year -9%
5 Year -33%
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Anadarko BasinOklahoma, Texas
-500,000
1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,000
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03Dai
ly G
as P
rod
uct
ion
(M
cf/d
ay)
Total Production Change
1 Year -2%
5 Year -7%
Mid-Continent Production•Richard Sharples, President of Anadarko Energy Services on the status of Mid-continent supplies:
“The Mid-continent is so mature that it doesn’t matter how much you drill, you won’t increase production”
From Gas Daily Friday, February 16, 2001
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Atmos, Kansas LDC Seeks Gas from Rockies•“Atmos has determined that declining gas supplies in the Mid-continent region, including gas supplies it currently purchases from wells in the Kansas Hugoton and Panoma Council fields, threaten Atmos’ ability to continue to provide and maintain a reliable source of gas.”
•“This along with increased demand due to gas-fired electric generation, has resulted in increased pressure on the price of gas produced in the Mid-continent region”
•“Historically, Rocky Mountain gas supplies have been less expensive than Mid-continent gas supplies due primarily to lower finding costs.”
From Gas Daily Tuesday, August 26, 2003
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
May-August 2003 Gas Daily Price Comparison
Average Cheyenne Hub: $4.59
Average Kern River: $4.63
Average Williams (OK): $5.16
Average Differential (Kern vs. Cheyenne Hub): $0.04
Gas Daily Midpoint Price Comparison: May-August 2003 - Kern River, Williams (Oklahoma), Cheyenne Hub
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
$20.00
3/31
/200
0
4/30
/200
0
5/31
/200
0
6/30
/200
0
7/31
/200
0
8/31
/200
0
9/30
/200
0
10/3
1/20
00
11/3
0/20
00
12/3
1/20
00
1/31
/200
1
2/28
/200
1
3/31
/200
1
4/30
/200
1
5/31
/200
1
6/30
/200
1
7/31
/200
1
8/31
/200
1
9/30
/200
1
10/3
1/20
01
11/3
0/20
01
12/3
1/20
01
1/31
/200
2
2/28
/200
2
3/31
/200
2
4/30
/200
2
5/31
/200
2
6/30
/200
2
7/31
/200
2
8/31
/200
2
9/30
/200
2
10/3
1/20
02
11/3
0/20
02
12/3
1/20
02
1/31
/200
3
2/28
/200
3
3/31
/200
3
4/30
/200
3
5/31
/200
3
6/30
/200
3
7/31
/200
3
($12.00)
($10.00)
($8.00)
($6.00)
($4.00)
($2.00)
$0.00
$2.00
Cheyenne Hub
Williams (OK)
Differential (CHY v WNG)
Data from 3/31/00 - Present
CHY Average Price - $3.34WNG Average Price - $4.13CHY v. WNG Average Differential - ($.80)
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Cheyenne Hub
Kern River
Williams (OK)
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Insert mapSouthern Star
KMI
Kansas Gas
PEPL
ANR
NNG
Trailblazer
CIG
NGPL
PSC Colorado
Medicine Bow
• 540-1,000 MDth/day
• Cheyenne Hub to Mid-Continent
• 400 Mile P/L
• Targeted In-Service date 2006-2007
• Mid-continent Hub 6.8 Bcfd of interstate takeaway capacity
S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
• 540,000 - 1,000,000 Dth/day
• Cheyenne Hub to Mid-Continent
• 400 Miles 30”-36” P/L
• 30,000-60,000 HP
• 100% LF Rate Range to pipeline hub is $0.25-0.35
• Anticipated Fuel at 1% or Less
• Targeted In-Service 2006-2007 Timeframe
• Mid-continent Hub 6.8 Bcfd of interstate takeaway capacity
Project Activities Completed– Pipeline Route Established
– Aerial Photography
– Detailed Land Survey
– Biological and Archeological Study
– Over 26% of Right-of-Way Acquired
– Station Site Acquired
Project Activities Underway– Project Engineering Review and Estimate Refinement
– Non-binding Open Season August 18th- October 10th
– Western Frontier Website Available – www.sscgp.com/westernfrontier
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
•540,000 Dth/day
•Echo Springs/Wamsutter to Cheyenne Hub
•186 Miles 30” P/L
•41,000 HP
•Greater Green River Takeaway Capacity
•Targeted In-Service Date of 2006-2007
Spot Natural Gas Price Scenarios Sources: History: Natural Gas Week; Projections: Short-Term Energy Outlook, June 2003.
0
1
2
3
4
5
6
7
8
9
101/
1/20
00
4/1/
2000
7/1/
2000
10/1
/200
0
1/1/
2001
4/1/
2001
7/1/
2001
10/1
/200
1
1/1/
2002
4/1/
2002
7/1/
2002
10/1
/200
2
1/1/
2003
4/1/
2003
7/1/
2003
10/1
/200
3
1/1/
2004
4/1/
2004
7/1/
2004
10/1
/200
4
$ P
er M
illio
n B
tu
June 2003
Base
Low Supply
Severe Weather
Nightmare or Opportunity? It’s Your Choice
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Conclusions Gas Market will Remain Tight in Near Term Leaves Market Vulnerable to Price Volatility Long Term Focus is Key State Commission Education Necessary If Environmental & Regulatory delays can be cleared Wyoming
Production could Grow from the current 4.2 Bcfd to in excess of 6 Bcfd over the next 5 years
New Infrastructure will be required to get this gas to Market Supply Diversification Needed in the Mid-continent Rockies Gas can provide Long Term Solution for Mid-continent Markets Western Frontier Project Situated to meet Market Needs Quickly &
Efficiently with Market Support
Why Western Frontier?
– Mid-Continent Supply Basins Declining
• Anadarko 2-5% Annually
• Hugoton 7-9% Annually
• Supply Diversification Necessary
– Rockies Supply Prolific needs Additional Market Access
– Basin Diversification
• Cheyenne Hub
• Denver Julesburg (DJ) Basin
– Average Differential Between Rockies-Cheyenne Hub and Mid-Continent Inception to Present= $0.80
– Dynamic Operating Hub - Additional Infrastructure Needed out of Cheyenne Hub
– Diverse Market Access Providing Liquidity
– Market Growth
• Oklahoma Intrastate Market
• Southwest Missouri
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E
Contact Information
Jerry Morris – (270) 852-4660
Donny King – (270) 852-4663
Dale Sanders – (270) 852-4666
99 Years of Continuous Quality Service S O U T H E R N S T A R C E N T R A L G A S P I P E L I N E