Issue Summer 13
Much of the business Caiman Energy II LLC is in has changed rarely over the past 60 years or so. In fact, according to Jack Lafield, chairman and CEO of Caiman Energy and Blue Racer Midstream, natural gas has been abundant in the United States for years, but the volatile pricing of other fossil fuels and new technologies which have allowed producers to access shale reservoirs have finally put this resource at the forefront of America’s energy policy.
“We feel strongly that natural gas is key to the resurgence of the U.S. industrial segment, and that it will move the country back from a consuming to an industrial country,” Lafield says. “The country with the least expensive long-term fuel source is the country that will succeed better than anywhere in the world. We look at the development of shale plays as a way to rid ourselves of importing oil to really make this country independent. We’re so uniquely situated, it’s fun to be a part of it.”
Caiman Energy is an independent midstream energy company that provides the infrastructure and services necessary to move natural gas products from the wellhead to market. The company boasts a senior management team with more than 160 years of combined experience in designing, building, owning, operating and acquiring midstream assets, including extensive experience in the Barnett, Haynesville and Marcellus shale plays.
The company’s mission is to leverage its extensive industry experience to become a premier provider of midstream services to oil and gas producers and end-users. Caiman Energy’s services center on its gathering and processing capabilities as well as fractionation and natural gas liquids (NGLs) handling, marketing and transportation.
For its gathering and processing, the company takes natural gas at the wellhead with varying amounts of liquids in raw form and transports raw natural gas to processing plants to separate and remove NGLs from the natural gas stream.
The NGL-handling segment includes its NGL pipeline and fractionation business and related NGL marketing activities. These fractionation facilities process mixed NGL streams into purity products including ethane, propane, normal butane, isobutene and natural gasoline. NGL products include ethane, propane, butanes and natural gasoline that are used as raw materials by the petrochemical industry, as feedstock in the production of motor gasoline and as fuel by industrial and residential end-users.
“Technology in our business has stayed the same for a while,” Lafield says. “Cryogenic processing plants have been around for a long time. The plants manufactured today are used industrywide.”
Supply Side Shift
The biggest change Caiman Energy has seen in the industry is in the location of the resources where its services are in demand. Today, this natural gas is being extracted, gathered and processed in regions where barely any processing infrastructure exists. And where it does exist, Lafield says, it often is outdated and in need of upgrades.
“It is the same market base, but where the market has historically been – that is, end-users for natural gas and NGLs – where they are now and where they are going to be in the future is different,” Lafield says. “What this dictates to us in the midstream space is very important relative to the facilities we build, the size we build them and the ancillary facilities we need to support our facilities.”
Traditionally, Texas, Louisiana and Oklahoma were the key providers of natural gas and natural gas liquids for U.S. consumption. Today, there is a great deal of activity in the northeastern United States, home to the Marcellus and Utica shale plays. Lafield says the two plays combined could produce a third of the total supply from the southwest.
“The shift is in the supply side, not the market side. Everyone in the northeast region of our country in our business is thinking about where this is going to go in the next five to 10 years,” Lafield says. “This is creating a lot of projects that are necessary, and that’s work for companies like Caiman and others in the midstream business. It requires a lot of effort and capital to be able to unlock and optimize the tremendous assets available to us in shale reservoirs across the country.”
That’s where Lafield’s expertise comes into play. He says one of his roles it to determine where there are opportunities for Caiman Energy to develop a transportation network to support its facilities throughout the United States.
With this in mind, the company is supporting Williams out of Tulsa, Okla., (NYSE: WMB) and Boardwalk Pipeline Partners LP (NYSE: BWP), on the development of the Bluegrass Pipeline project. This pipeline will take a combination of all Y-grade NGL products to the Gulf Coast, where Lafield says 95 percent of the petrochemical industry in the United States operates.
“Instead of trying to rebuild, our stronger feeling for the mid-term – that is, in the next five to 10 years – is that it is more economical to ship raw product to the Gulf Coast where facilities exist and expansions are a lot easier than grassroots efforts in the Northeast,” Lafield adds.
Its joint ventures with companies like Dominion and its ability to access large amounts of capital will continue to differentiate Caiman from the competition. Lafield says he foresees between $2 billion and $3 billion of development coming up for bid in the Utica over the next three to five years, and it will be ready to build grassroots facilities when the opportunities arise.
“Caiman is a private equity-backed company so we’ll exit that at some point,” Lafield says. “We will have done our job, and our job is to be the first mover in a frontier area like the Utica.”