The Edmond Sun

October 17, 2012

Chesapeake sells oil pipeline stake

James Neal
CNHI News Service

ENID — Chesapeake Energy has sold its stake in a proposed crude oil pipeline still being opposed by landowners in Major County.

SemGroup Corp., Gavilon LLC and Chesapeake together formed Glass Mountain Pipeline LLC in May, with plans to build a 210-mile pipeline to carry crude from Arnett and Alva to Cushing.

The initial formation of Glass Mountain Pipeline consisted of 50 percent ownership by Chesapeake, with the remainder split evenly between SemGroup and Gavilon.

SemGroup and Gavilon announced Wednesday they each had purchased an additional 25 percent share of the company, buying Chesapeake out of the construction and operation of the pipeline.

The buy-out option was written into the original joint venture agreement, according to a SemGroup press release, and Chesapeake will retain its long-term transportation agreement with Glass Mountain Pipeline, “providing the economic incentive for its construction.”

“Chesapeake is proud to be involved in this significant project to deliver increased volumes of Oklahoma oil to market,” said Chesapeake spokesman Michael Kehs. “This will benefit producers, royalty owners and the state.”

The Glass Mountain Pipeline will have an initial capacity of about 140,000 barrels per day and 440,000 barrels of intermediate storage, according to SemGroup figures.

The two lateral lines from Alva and Arnett will join near Cleo Springs in Major County, then continue east to Gavilon’s Cushing facility, where the joint venture will own one million barrels of crude oil storage.

A number of Major County landowners are resisting signing right-of-way contracts for the pipeline, citing concerns over the pipeline’s route atop the Cimarron River Aquifer, the major source of water for Major, Garfield and Kingfisher counties.

“We’re not against the pipeline, we just don’t want it going through that aquifer,” said Rhonda Regier, whose husband is trustee for family land on which the pipeline intersection is planned to be built.

The Regiers signed a contract to sell 34 acres of land to Glass Mountain Pipeline before more landowners came out in opposition to the project. Regier said SemGroup plans to build a storage and pumping facility on the land, including two 158,000 barrel tanks.

Regier said there is a dedicated group of landowners refusing to sign crossing contracts, but many of the affected landowners signed contracts because they didn’t see any other choice.

“We can’t get that many people excited about it, because they don’t want to be pressured by this company,” Regier said. “They’ve been putting a lot of pressure on the landowners to sign contracts. They’re a big company, and we’re just little people.”

Regier said those in opposition have set regular meetings, and even have consulted with Nebraska property owners involved in a protracted fight against the TransCanada pipeline.

“It’s been three years up there and it’s still going on, and they have a huge group,” Regier said. “We don’t have a huge group.”

She said it’s doubtful local landowners will be able to put up that kind of fight.

“We’re to the point we’re just trying to get a decent contract that has money in it for us, and spells out exactly what they’re going to do if there is a spill,” Regier said. “That’s our major concern, is what would happen with the water if there’s a leak.”

Enid City Manager Eric Benson said he has reviewed the pipeline project, and he is not concerned about its proximity to Enid’s largest water well field.

“My comfort level with it is very high, because I have studied it, my staff has studied it and we’ve studied it with the state’s resources and the company involved,” Benson said. “I am absolutely convinced the pipeline does not pose a threat to our water wells.”

He said current safety standards and technology in pipeline delivery are “unlike anything we’ve ever seen before.”

“The safety standards aren’t what you saw 30 years ago,” Benson said. “The state and federal guidelines are such that they provide a safe delivery product in that pipeline.”

SemGroup communication specialist Kiley Roberson said the company is working to ensure fair contracts with the affected landowners and a safe pipeline. SemGroup will operate the pipeline through its affiliated limited partnership, Rose Rock Midstream.

“We continue to work with landowners to reach fair agreements and safety is always our top priority,” Roberson said. “We consult experts like geologists and engineers about paths, water sources, soil type, rock formations and more.”

She said SemGroup is “focused on making sure our pipeline route is safe for the environment and those living around it.”

Roberson said pipeline safety is regulated by “very strict guidelines.”

“These standards include special coating to prevent corrosion, continuous, real-time monitoring and regular inspections using high-tech instruments to check for deterioration,” she said.

Roberson said the pipeline will be safer than other transportation methods, and will cut down on tanker truck traffic to Cushing.

“Energy resources are important for the country and for Oklahoma,” Roberson said. “In our state, we have a long history of energy development and a legacy of people and companies who have shaped the energy business, not only in Oklahoma but across the nation. Leadership in finding, producing and safely transporting energy resources is something Oklahomans know how to do.”

Roberson said the pipeline development will not be affected by this week’s ownership change, and SemGroup plans to complete the pipeline by the end of 2013.