Genesis Energy L.P. is buying the offshore pipeline and services business of Enterprise Products L.P. and its affiliates, betting $1.5 billion that energy production in the deepwater Gulf of Mexico will continue to grow.
The deal gives Genesis outright ownership or majority control in three major oil pipelines in the Gulf of Mexico, including:
- 64 percent of Poseidon Oil Pipeline System. The system gathers production from the central and western Gulf of Mexico and moves it onshore to south Louisiana. Genesis already owned 28 percent of the pipeline, Enterprise 36 percent. Poseidon can deliver 400,000 barrels of crude per day.
- 100 percent of the Southeast Keathley Canyon Oil Pipeline System, a 149-mile pipeline that gathers production in the deep-water central Gulf. Genesis and Enterprise each owned half of the pipeline, whose daily capacity is 115,000 barrels.
- 100 percent of the Cameron Highway Oil Pipeline System, which gathers production from the South Green Canyon area of the Gulf, off the southeastern coast of Louisiana. Genesis and Enterprise each owned half the pipeline, capable of delivering 500,000 barrels of crude each day to refineries and terminals in southeast Texas.
“Genesis is becoming the major player of pipelines in the Gulf offshore so that just consolidates their strength,” said Dale Doucet, a broker with Brock Investor Services.
Altogether Enterprise had roughly 2,350 miles of offshore oil and natural gas pipelines and six offshore hubs.
Pipeline companies make their money on the amount of oil they move through their pipelines, Doucet said. So they need the production from wells that are already producing and the production from wells that will be drilled in the future.
“They’ve got existing volume as far as the eye can see. People are committed to the deep water. That’s where the big volumes are coming in,” Doucet said.
Genesis said it expects energy companies will continue to target the enormous, long-lived reservoirs in the deepwater Gulf.
Increasing its footprint in the Gulf, the company said, offers Enterprise more opportunities to grow its offshore pipeline business.
Deepwater projects can take years to develop and cost more than $1 billion. However, industry members say the properties contain so much oil that the cost to find and develop them works out to a few dollars per barrel, a fraction of the costs onshore.
A handful of major deepwater projects have begun producing in the last year, including Covington-based LLOG’s $2 billion Delta House hub and platform. The facility will be able to handle up to 100,000 barrels of oil and 240 million cubic feet of natural gas per day. Earlier this month, Shell announce it was going forward with its Appomattox project. Peak daily production is estimated at the equivalent of 175,000 barrels of oil, with startup expected sometime around 2020.