Salvage Specialist Sees Rising Demand for Defunct Pipelines

High fuel prices and feverish trading in energy assets are pumping up David Howell's pipeline business.

The owner of Pipeline Equities is attracting more customers for the company's niche services as old projects find new value in the overheated oilpatch.

Howell buys and removes small defunct pipelines, then sell them for salvage. In one instance that illustrates current frenzied conditions, the salvaged pipe was recycled into downhole casing for oil well drilling.

Appraisal jobs also are coming more frequently these days for Howell. Owners want to know if their assets may be worth more now than the last time they checked, or whether they are paying excessive taxes on old pipelines.

Says Howell: "Appraisals for estate disposition, tax disputes, mergers and acquisition are a new growth market that places strong demands on the few companies in this business."

Transpetco Transport Co. of Shreveport, La., a group of petroleum engineers who operate pipelines, asked Howell to appraise an 11-year-old pipeline. The company wanted to determine how much value had been added by an upsurge in activity requiring the pipeline's services.

Transpetco partner Wallace Stanberry says pinpointing value has become more important than ever in the current market.

Says Stanberry: "We need to have a fair value on the pipelines because we have partners on some of them and we're always considering mergers, joint ventures and potential salvage in the future. So you need to have a value that is supportable."

Most professional appraisers work for consulting or engineering firms and deal with big transactions for large oil and pipeline companies.

Howell calls his deals "small potatoes." But a ton of them out there after years of little or no activity are changing hands at a faster pace now.

Pipeline to Profit

Howell, 66, was a drilling contractor and CEO of an oilfield supply company earlier in his career. In the 1980s he bought and sold pipe and drilling and production equipment while constructing drilling and workover units worldwide as Tradex Petroleum Services.

When a shortage of pipe emerged in the late 1980s, Howell started taking out old pipelines and found the business profitable.

Clients of Pipeline Equities have included Chevron Corp., Coastal Corp., Exxon Corp., Koch, Arco, Amoco, TXU Corp., Pickens Pipeline and Gulfmark Energy Inc.

Last year, Howell bought 50 miles of pipeline in Brazoria County from Gulfmark Energy, a company controlled by Bud Adams.

The pipeline laid by Exxon in 1925 had become uneconomical, but was still in "pristine condition," says Howell.

He sent 200,000 feet of the salvaged material to CPS Houston Inc., a pipe recycler who cleaned and straightened the pipe.

Howell then sold the pipe to Razien Metals Co., a wholesale dealer in Oklahoma , where the pipe was threaded and turned into downhole casing for drilling wells.

More recently, Howell bought a Florida pipeline formerly used for jet fuel from Valero Corp.

The 26-mile line from the Miami Airport to Homestead Air Force Base is no longer needed.

Removal would have been difficult because much of the line through Miami runs under pavement.

Howell noticed that it also ran parallel to an active six-inch natural gas line, so he contacted the owner to see if there would be any interest in acquiring the old jet fuel line.

With a Southern Florida gas market growing by leaps and bounds, the utility jumped at the offer and plans on converting the line to carry gas.

Howell has sold other defunct oil and gas pipelines to various customers. Cable companies like Time Warner retrofit them to run cables. Water utilities convert them into water lines.

Often the pipelines are in environmentally sensitive areas.

The Gulfmark Energy pipeline recycled into drill casing ran through U.S. Fish & Wildlife lands in Brazoria County.

A 20-mile gas transmission line Howell bought from Exxon ran through Texas wetlands near Anahuac . And a 35-mile crude oil transportation line ran through a wildlife refuge near Corpus Christi.

In each case, Howell deeds the right-of-way back to the landowner after removing the pipeline.

Says Howell: "The wildlife and parks people are always really happy to get it out of there."

Energy; Week of 19-25, 2006
Section 14A
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