Natural Gas and NGL
Processing Cost Allowances on NGL Royalties
Provided expert reports and testimony on behalf of twelve major and large independent gas producing companies in Federal Qui Tam litigation. Responded to Relator’s claims to exclude recompression costs from the processing cost allowances allowed by the Mineral Management Service (MMS). Reviewed the design and operation of numerous gas plants, and demonstrated that recompression is integral to the cryogenic turboexpander process and its associated costs were fully deductible.
Unbundled the processing costs incurred by a major exploration and production company under a non-arm’s length contract for its offshore natural gas production. Evaluated the operating conditions of each unit operation performed by the gas processor at its NGL extraction facility. Estimated capital investment and operating expenses for each unit operation and determined allowable vs. non-allowable as a percentage of the processing costs per federal royalty regulations.
Propane Product Quality Dispute
Investigated the design and operation of a natural gas liquid fractionation, storage, and loading facility located on the Red Sea to determine potential causes of alleged hydrogen sulfide contamination of propane cargoes. Matter was filed in London High Court of Justice, Queen’s Bench Division Commercial Court.
LNG Receiving Terminal EPC Contract Request for Proposal
Prepared Request for Proposal document for EPC contract for a greenfield LNG receiving terminal to be located in Eastern Canada. Role included finalizing outstanding recommendations of the FEED study and appropriately addressing the potential bidder’s requirements to optimize the design with their standardized design and construction methodologies. Specific issues included the options for gas quality adjustment, interface with the regional natural gas pipelines, and specific requirements associated with cold weather operation.
Gathering & Processing Unbundling
Assisted a midstream company with unbundling of costs for several large gathering and processing systems in response to a request by the federal Office of Natural Resources Revenue. Classified capital investments into appropriate unit operations, including transportation, treating, dehydration, compression and processing. Reviewed equipment design and field operations to determine allowable vs. non-allowable in accordance with federal regulations.
Gas Storage Project
Project Manager for a $50 million natural gas storage project with responsibility for development of a 12,000 horsepower (hp) compressor station and wellhead gathering system. Performed engineering for pipeline gathering system and compressor station; developed EPC scope of work; and managed EPCM firm for detailed engineering phase.
Gas Distribution System Damage Assessment
Assessed damage to urban natural gas distribution system that experienced flooding from Hurricane Katrina. Prepared cost estimates for repairs to city gate stations, pressure regulating stations, mains, service line, and customer meters.
Natural Gas Processing Plant Construction Delay
On behalf of a state-owned oil company, reviewed Engineering and Construction contractor’s claims of delay and disruption associated with a major debottlenecking project for a 2.4 billion standard cubic feet per day natural gas treating facility located in the Middle East. Claims were associated with the design and construction of a high-pressure DGA unit, a 535,000 ton per day sulfur recovery unit, and new high-pressure flare systems.
LNG Receiving Terminal Due Diligence
Provided technical and construction review support associated with a major LNG shipper’s evaluation of three specific North American LNG Receiving Terminals. This assignment included site reviews including assessing the maritime approach routes, the status of the project development, viability of the pipeline interconnections to regional pipeline networks, consideration of off-design operational cases including low throughput/standby modes of operation.
Audit of Gas Contract
Conducted an audit of the revenue settlement of natural gas liquids and residue gas per the terms of a gas processing agreement. Investigated causes of reduced product yields, and reviewed compressor operation, fuel consumption, and product and fuel allocation procedures.
Pipeline and Treating Plant Due Diligence
Conducted due diligence on natural gas gathering and transmission pipelines and a large gas treating complex in Northern Michigan, on behalf of large international bank. Conducted physical inspection of the facilities, reviewed historical and projected O&M and capital costs, and reviewed primary producer transportation and treating contracts. Assessed historical corrosion problems in the treating plant due to oxygen content in inlet natural gas feedstock. Reviewed natural gas quality specifications along with measurement and detection systems. Reviewed financial model and identified and evaluated key sensitivities to determine market valuations of assets in support of structured financing arrangement on behalf of bank client and owner/operator.
Alternative LNG and Compressed Natural Gas (CNG) Transport Strategies
Performed technical and market reviews of emerging natural gas marine transport systems that utilized LNG barges, Compressed Natural Gas (CNG), and one proprietary technology. These studies included interface with supply and demand points, assessment of gas clean-up and processing requirements, and the valuation of land-based storage requirements. A portion of these reviews was associated with projecting the economies of scale and specific market advantage/disadvantage versus conventional LNG.
Conducted independent process design review of gas processing plant design prepared by EPC Contractor to ensure optimum process performance and ability to meet contractual guarantees. Also prepared process design and cost estimate for a gas-condensate inlet separation and condensate stabilization system that was used by client to verify change order claims being made by EPC Contractor.
LNG Receiving Terminal Assessment
Provided due diligence assessments of several proposed LNG receiving terminals including the assessment of the economic value of locating power generation units at the same location.
LPG Pipeline Specifications
Evaluated pipeline tariffs, product specifications, connection agreements, and LPG sales agreements for the export of LPG to northern Mexico from fractionation facilities in West Texas. Also calculated fractionator feedstock and product economics.
Gas Processing Plant Dispute
Prepared expert reports and testified in Australian arbitration on behalf of Engineering, Procurement and Construction (EPC) contractor involved in engineering and construction of offshore platform, sub-sea pipelines, and onshore gas processing plant. Issues involved impact of change to feedstock design basis as well as numerous engineering and construction related defect claims made by owner.
LNG Receiving Terminal with Onsite Power Generation
Performed thermodynamic and economic studies for several proposed sites to determine the cost advantage of co-locating LNG receiving and power generation facilities. One specific application utilized a combination of boil-off gas and pipeline quality natural gas to self generate the terminal electrical requirements while recovering waste heat. A second application was based upon utilizing the waste heat associated with large combustion turbine inlet chilling to provide the dual benefits of reduced re-gasification product gas used while providing significant incremental hot weather power generation capacity.
As the world evolves towards cleaner, energy-efficient, and reliable fuels, demand for natural gas and natural gas liquids will continue to grow. Watson Millican & Co. has performed technical, operational, and commercial due diligence on acquisitions and financings of midstream assets including natural gas gathering systems, treating and processing plants, storage facilities, and gas and NGL pipelines.
We have provided expert testimony in numerous royalty disputes at the state and Federal levels, involving the market value or net proceeds of natural gas, NGL, and condensate production, as well as appropriate deductions or allowances for the costs of processing and transporting the gas.
Our firm has also provided expertise in the development, construction, and operation of processing facilities, and investigated the causes of process and equipment failures.