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ONEOK Partners-Fermaca to Build Natural Gas Pipeline - Analyst Blog

ONEOK Partners, L.P.OKS has partnered with a subsidiary of Fermaca Infrastructure B.V. ("Fermaca"), a Mexican gas infrastructure player, to build the Roadrunner Gas Transmission pipeline. Each firm holds a 50% ownership in the joint venture ("JV"). The cost of the project is estimated at $450-$500 million.

Per the agreement, ONEOK Partners will be involved in the construction of the project and act as the operator of the pipeline once completed.

Around 200-mile long, 30-inch wide, Roadrunner will stretch from the 2,227-mile long ONEOK WesTex Transmission natural gas pipeline system at Coyanosa, TX in the U.S. to Fermaca's Tarahumara Gas Pipeline in Mexico. Once completed, the pipeline will transport up to 640 million cubic feet per day ("MMcf/d") of natural gas.

Upon customary approvals, Roadrunner will be completed in three phases. The first phase is expected to be concluded by the first quarter of 2016 with transportation capacity of 170 MMcf/d. Upon completion of the second phase in first-quarter 2017, transportation capacity of Roadrunner will scale up to 570 MMcf/d. The final phase is expected to be completed in 2019 and will increase the available capacity to 640 MMcf/d.

All transportation contracts of Roadrunner will be firm (take-or-pay) with tenure of 25 years. The pipeline was fully subscribed in its initial design through an open season process between Dec 2 and Dec 26, 2014.

The objective of constructing the pipeline is to transport natural gas from the mineral-rich Permian Basin in west Texas, U.S. to the growing Mexican natural gas market. In Mexico, demand for natural gas is gradually rising on the back of higher consumption resulting from increasing utilization of natural gas as a fuel source for power generation. Roadrunner will help the partnership in meeting increasing natural gas demand in Mexico.

According to a report published by the U.S. Energy Information Administration in Dec 2014, in terms of proved reserves of natural gas, Texas is one of the top-five states in the U.S. with a huge natural gas reserve.

In the past, many upstream players, including Occidental Petroleum Corp. OXY and Matador Resources Co. MTDR , have strived to unlock the vast reserves of this region. Increasing exploration and production activities in Texas will subsequently increase midstream service demand, thereby boosting ONEOK Partners' future cash inflows.

ONEOK Partners currently holds a Zacks Rank #3 (Hold). A better-ranked stock in the same sector is Valero Energy Partners LP VLP , carrying a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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