Infrastructure growth follows development trends in Midland Basin
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A glance at a map of drilling rig locations will show the heaviest concentrations of activity lie in the Permian’s Midland and Delaware basins.
“Even in a difficult commodity market, there are parts of North America that are still economic for oil and gas production, and the Permian is one of those,” said Ben Lamb, senior vice president, finance and corporate development, with EnLink Midstream. “In an environment in which a lot of companies are scaling back, EnLink is investing in areas like the Permian and central Oklahoma because we believe they represent the best supply areas in North America.”
In recent years, the Delaware has been a magnet for infrastructure projects, with at least three companies announcing pipeline extensions, construction and new processing plants in the last few months.
The Midland Basin is getting its share of attention. EnLink just announced plans for the Greater Chickadee, a new crude oil gathering project to be built in Upton and Midland counties. The $70 million to $80 million project will include more than 150 miles of high- and low-pressure pipelines, multiple central tank batteries and pump, truck injection, and storage stations. Initial tank batteries will be build in Upton County while the pipeline system will extend across Midland County as well.
“The Greater Chickadee project is located primarily in Upton and Midland counties, which have seen a lot of activity even in the downturn,” Lamb said.
While EnLink is looking to Upton and Midland counties, Navitas Midstream Partners LLC is looking further east to Howard County, executing a long-term gas purchase agreement with Encana Oil & Gas (USA) Inc.
The agreement calls for Navitas to purchase natural gas from Encana’s acreage position in Howard County. As part of the agreement, Navitas will build a new system consisting of low-pressure gathering lines, multiple compressor stations and a 38-mile 16-inch high-pressure pipeline that will provide services for both natural gas and natural gas liquids.
“We’ve begun to see a fair amount of development in Howard County, mostly the western half,” R. Bruce Northcutt, chief executive officer, said in a phone interview from his office in The Woodlands. He cited tremendous well results from the Wolfcamp and Spraberry formations in the county.
The agreement came about after talks between Navitas and Encana after Encana sought proposals to move its production to market.
The region Navitas will serve is not necessarily underserved but is in need of bigger diameter pipeline takeaway capacity, more processing capacity and nitrogen rejection capacity, Northcutt said.
“There’s not as much competition, not as many pipelines, in this area,” he said.
The Midland Basin has historically had more pipeline and processing capacity, he said. But the South Delaware Basin, which Northcutt describes as that portion of the Delaware south of the New Mexico-Texas state line, has been extremely active while the North Delaware Basin — which he said is north of the New Mexico state line — holds great promise.
Even in the current downturn, “we see signs of drilling in the Midland Basin. It’s the best rock, the economics. Drilling has slowed but it’s still active,” Northcutt said.
While the downturn has impacted upstream operations, he said the last year has been busy for Navitas. The company acquired assets from DCP in September and in December acquired the Crane system from Apache Corp. “That’s three sizable deals in less than a year,” he said.
In addition to its agreement with Encana, the company will build new cryogenic processing capacity near its existing Spraberry processing complex to accommodate production from Howard, Glasscock, Martin, Midland and Upton counties coming from Encana and other producers.
A new processing plant, the Newberry Plant, will have processing capacity of 60 million cubic feet per day and nitrogen rejection capability.
Once completed, the expansion will increase Navitas’ combined processing capacity in the Midland Basin to approximately 155 million cubic feet per day and include carbon dioxide and nitrogen rejection capability.
“We have also begun permitting a potential pipeline project in Eddy County, New Mexico,” Northcutt said.
He said that the company has not lost sight of the Delaware Basin.
“We’ve got the Bureau of Land Management permit and are waiting for activity to pick up.”
While the company waits, it has been active in greenfield pipe projects and acquisitions. Northcutt said the company has spent significant sums on pipe replacement and compressor addition. A 16-inch pipeline off its Spraberry processing complex into Martin County has been completed and the replacement of the main line leading to the Spraberry complex is expected to be completed by the end of the year, he said.
As commodity prices rebound and the industry begins to recover from the downturn, Northcutt said he believes such shovel-ready projects will ensure corporate growth in the future.
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