Awash With Activity

The late 1950s were the heydays for the northern Texas Panhandle area and bordering counties of western Oklahoma. Having served this earlier development, substantial midstream development is already in place.

Today, operators in the Granite Wash, Tonkawa, Cleveland and Marmaton unconventional-resource development plays are resurrecting overall regional activity and production output. The challenge now is to determine how much of the existing midstream infrastructure is compatible and available, how it must be modified to meet operators’ present and future needs and if new infrastructure will be required.

The current regional pay targets for the Granite Wash play are condensate and natural gas liquids (NGLs), while the principal target for the other plays appears to be primarily oil. These liquids provide the economic support for development and are driving the requirements for regional midstream infrastructure.

Midstream dry-gas infrastructure in the area is capable of managing expected processing plant residue volumes and, in general, historical long-haul transportation capacity to market is also available from the area.

An extensive Oklahoma intrastate pipeline network is also accessible with Enogex LLC’s pipeline, a key player. However, as in other developing resource areas in the U.S., pure dry natural gas development is not attractive at this time due to currently low natural gas prices and operators choosing to focus more on the liquids-side of their lease portfolio.

The Marmaton formation of the Granite Wash play area lies north of the Granite Wash in the Oklahoma Panhandle, primarily in Beaver County, Oklahoma. For many years, vertical wells have produced oil and associated gas from this area, thus a significant amount of midstream infrastructure for oil, gas and NGLs exists in the county.

The Cleveland shale play and the Tonkawa plays in western Oklahoma are positioned on the Oklahoma side of the Texas-Oklahoma border, principally in Roger Mills and Ellis counties. Nearby midstream gathering infrastructure appears sufficient to manage expected levels of natural gas from these principally oil plays.

With numerous historical wells, plants and associated midstream facilities in place for oil, condensate, associated rich gas and dry gas operations from previous decades, the challenge today is to determine how those facilities can accommodate the many new Granite Wash area developments.

Where historical dry-gas systems were in place, companies are working with area midstream operators to possibly modify them for rich-gas service and ultimately route the associated gas volumes to existing, expanded, consolidated or new area gas-processing facilities. When NGL products are removed at area plants, the challenge for operators is to ensure that these products are fractionated for local market use or can be transported to distant fractionation facilities.

Natural gas infrastructure

The Granite Wash development area is found in the Texas Panhandle Wash counties of Gray, Hemphill, Roberts and Wheeler, and extends into Beckham, Roger Mills, Custer, Washita and Greer counties in Oklahoma—often referred to as the Colony Granite Wash.

Existing area midstream infrastructure is supporting initial development, and the hybrid strategy implementation is well underway. A brief description of a number of active area midstream operators and their facilities available to serve the Granite Wash and other nearby plays follows.

Chesapeake Midstream Partners LP

This company primarily gathers gas from Chesapeake wells in Colony Granite Wash with 125 miles of pipeline with 60 million cubic feet (MMcf) per day of capacity, and the Cleveland-Tonkawa area with 115 miles of 30 MMcf per day of capacity. The system routes gas to Enogex’s pipeline and gathering facilities for processing at Enogex’s processing plants.

Chesapeake Midstream manages not only the gas product acquisition and disposition but also the produced NGLs as well. Residue gas deliveries can be made via the Enogex pipeline or possibly via other pipeline interconnects at the tailgates of the various Enogex plants.

Crestwood Midstream Partners LP

Having acquired its Texas Panhandle facilities from Frontier Gas Services LLC, Crestwood entered the fray with an expansion of its existing area gas-gathering capability into its 36 MMcf-per-day Indian Creek processing plant in Roberts County, Texas. Discussions of expansion of the Indian Creek facility continue. Residue volumes can route to pipelines owned by either Northern Natural Gas Co. or ANR Pipeline Co. NGL raw mix from the plant routes via an existing pipeline to connect with Enterprise Products Partners LP’s pipeline where volumes can be routed to Mont Belvieu, Texas, for fractionation and marketing.

DCP Midstream LLC

Without a doubt, the region’s largest player is DCP Midstream. The company has 29,000 miles of gas-gathering facilities in the Midcontinent region with about 2 billion cubic feet (Bcf) per day of gathering capacity.

Specifically to the Granite Wash developments, DCP has expanded its ability to connect into its existing core gathering system as well as to provide connectivity to third-party plants for NGL gathering and aggregation. DCP’s Rock Creek gas plant in Borger, Texas, can process 168 MMcf per day, while its Sherhan plant in Hansford County, Texas, can process about 270 MMcf per day.

NGLs removed at the Borger plant can be piped directly to Phillips 66 Co.’s refinery in Borger, Texas, for fractionation or consumption there.

DCP’s assets in Beaver County in the Oklahoma Panhandle and those in western Oklahoma provide the ability to support any rich-gas development in the oil-prone Marmaton, Cleveland and Tonkawa areas.

Eagle Rock Energy Partners LP

Having acquired some area systems, Eagle Rock operates both wet and dry gas-gathering pipelines and associated facilities in the region and has also initiated pipeline and processing-plant growth activity.

Eagle Rock’s East Panhandle system is central to the developing Granite Wash play and consists of almost 900 miles of gas-gathering pipelines, compression and four gas-processing plants. Because the Roberts, Canadian, Red Deer and Phoenix-Arrington processing facilities are operating at or near capacity, Eagle Rock decided to connect its two gathering systems to utilize joint capabilities while reconfiguring and relocating facilities to accommodate East Panhandle system growth. In addition to a 30 MMcf per day addition to its Phoenix-Arrington plant, Eagle Rock is building a new 60 MMcf per-day Woodall gas-processing plant in Hemphill County, Texas, and its associated NGL pipeline with completion of both forecast for early 2012. NGL from the various Eagle Rock plants are delivered into Oneok Hydrocarbon’s NGL pipeline for downstream fractionation.

Enbridge Energy Partners LP

With more than 2,800 miles of integrated gas-gathering facilities in the Texas Panhandle and southwestern Oklahoma, Enbridge is positioned to provide midstream support to area operators in the Colony Granite Wash developments in Oklahoma.

Although a major portion of the combined system footprint is in Oklahoma, its two gathering systems reach back into the Texas Panhandle Granite Wash area and can accommodate developments there as well.

Enbridge recently consolidated two major gathering systems to provide greater connectivity and commercial capability. Its Elk City gas-gathering system has two processing plants with a capacity of 370 MMcf per day. That system complements its larger Anadarko gathering system, which has six gas-processing plants.

To support further growth, the company has recently implemented a new 150 MMcf per day Allison gas-processing plant in Wheeler County, Texas, and has also proposed a new facility, the Ajax plant in Wheeler County, for 2013.

Enbridge’s consolidated gathering system will then consist of 10 processing plants with a capacity of about 1 Bcf per day. The size of these new plants provides an indication as to the amounts of processable gas being developed in the Texas Panhandle region and the level of commitment producers are willing to make to capture NGLs value.

Enogex Gas Gathering LLC

Enogex Gas Gathering, in addition to operating gathering systems in Oklahoma, operates a gas-gathering system in Wheeler County, Texas. With recent pipe and compression expansion in Wheeler County, and pipe expansions in Washita and Custer counties in Oklahoma, Enogex Gathering increased each system’s ability to gather Granite Wash production.

Its affiliate, Enogex Products LLC, is implementing a new 120 MMcf per day Wheeler gas-processing plant and is also implementing a new 200 MMcf per day South Canadian gas-processing plant to support its increased Oklahoma operations. Enogex LLC is an Oklahoma intrastate pipeline that gathers gas into its Texas and Oklahoma gathering systems.

The three affiliates, acting in concert with one another or independently, can provide gathering, processing, treating, NGL management, intrastate and interstate transportation service capabilities.

Linn Energy LLC

An active producer in the Texas Panhandle portion of the Granite Wash play, Linn Energy has elected to build its own gathering systems and establish connections of those systems to more than one area gas plant. This decision was driven primarily by a number of plant operating issues that have been affecting their activities in the area. Linn currently operates 63 miles of gas-gathering capability and connects to multiple area processing plants. Linn also proposes to add an additional 43-mile extension of these facilities in 2012.

MarkWest Energy Partners LP

Via its several gas-gathering systems in western Oklahoma connected to its Arapaho gas plant, MarkWest gathers gas in the Colony Granite Wash. MarkWest also operates a gathering system in the Texas Panhandle portion of the play and connects that gas to the Arapaho plant as well.

With increasing gas availability in both areas, MarkWest has expanded its regional gas-gathering capability and has expanded its 160 MMcf per day Arapaho gas plant by 75 MMcf per day to provide for a total area capability of 235 MMcf per day. Residue gas connects are to ANR Pipeline, CenterPoint Energy Gas Transmission, Natural Gas Pipeline Co. of America, and Panhandle Eastern Pipeline Co. NGLs are delivered to Oneok Inc.’s NGL pipeline.

Penn Virginia Resource Partners LP

Another company that has acquired regional midstream assets and is integrating their capabilities is Penn Virginia Resource Partners. The company operates more than 2,000 miles of gas-gathering systems and will have 330 MMcf per day of gas-processing capability by mid-2012.

Its existing plants are in Beaver, Oklahoma (100 MMcf per day), Spearman, Texas (60 MMcf per day) and Sweetwater, Texas (60 MMcf per day).

The most recent addition to its asset portfolio is an expansion of its existing Antelope Hills gas plant in Hemphill County, Texas. The expansion provides a total capacity of 70 MMcf per day.

Penn Virginia’s assets are in the heart of the Texas Panhandle portion of the Granite Wash play. The company’s Beaver County plant and associated gathering assets in the Oklahoma Panhandle will support any rich-gas output from the oil-prone Marmaton area as well.

Superior Pipeline Co. LLC

Superior Pipeline, a subsidiary of Unit Corp., operates gas-gathering, treating and processing facilities in the Texas Panhandle. Producer-affiliate Unit Petroleum Co. is one of its largest customers.

The sun sets in the Granite Wash as rig workers inspect new drill pad facilities.

Superior’s Hemphill system is in the heart of the Granite Wash play, with more than 130 miles of gathering facilities and four gas plants, aggregated as the Hemphill Processing Complex, for a total capability of 100 MMcf per day.

NGLs are delivered to Oneok’s NGL pipeline. Residue gas from these plants can be delivered into Southern Star Central Gas Pipeline Inc., Oneok’s WesTex Pipeline or Northern Natural Gas.

Liquids infrastructure

With liquids-rich gas and, in many cases, condensate, Granite Wash production is economical even in the current low gas-price environment. As a result, many of the current regional gas-processing facilities are at or near capacity.

However, new processing technologies are being implemented that will provide the highest possible NGLs recoveries. Downstream transportation of NGLs produced at the various regional gas-processing plants is essential to capture full NGLs value.

A variety of NGL infrastructure exists to provide access to local refineries, Midcontinent fractionators and routes to Conway, Kansas and Midcontinent trading and storage hubs. Alternatively, NGLs can be transported to fractionators and markets at Mont Belvieu, Texas.

Because increasing levels of NGLs from various regional plays are overwhelming available take-away capacity from Conway, a number of NGL pipeline-expansion projects are proposed. In limited cases, NGLs are also able to use railway or truck-transportation options.

DCP Midstream LLC

DCP proposes to convert its Seaway Products Pipeline to create an NGL pipeline from the Texas Panhandle to Mont Belvieu, Texas, with a capacity of about 150,000 barrels (bbl.) per day. The converted system will operate under a common carrier tariff and is scheduled to be in service by mid-2013. Depending upon shipper interest, this facility could also be extended northward to the Conway, Kansas, NGL trading hub.

Separately, DCP Midstream Partners LP has taken a 10% equity interest in the proposed Texas Express Pipeline (TEP) joint venture, and an affiliate has contracted for NGL transportation capacity on TEP as well.

Mid-America Pipeline Co. LLC

Mid-America’s existing Mid-America Pipeline (MAPL) NGL facility is operating at or near full capacity, gathering regional NGL and routing them to either Midcontinent fractionators, to Conway or to fractionators at Mont Belvieu. MAPL will continue to gather and aggregate regional NGL and could be a feeder pipeline to the proposed Texas Express Pipeline.

Oneok Energy Partners LP

Oneok Energy is one of the larger NGL pipeline operators in the region, primarily providing pipelines to Mont Belvieu or routing NGL products to and from various fractionation facilities to designated markets.

With significantly more NGL production in the region recently, Oneok is implementing a multifaceted strategy. First, Oneok will expand its existing Arbuckle Pipeline for NGL raw mix service to Mont Belvieu. Second, Oneok’s existing Sterling I pipeline will be reconfigured from its purity products service to carry both raw mix and purity products. Third, Oneok will construct its 193,000-bbl. per-day Sterling III NGL Pipeline by 2013.

Texas Express Pipeline LLC

Texas Express Pipeline (TEP) is sponsored by a joint venture of Enterprise Products Partners LP, Enbridge Energy Partners LP, Anadarko Petroleum Corp. and DCP Midstream Partners LP. This new system will extend from Skellytown, Texas, to Mont Belvieu to access fractionation and storage facilities there.

The project will have an initial capacity of 280,000 bbl. per day. Via integration with the existing Mid-America Pipeline, NGLs from other areas—including from Conway Hub—will be available to TEP.

Recently, an additional pipeline project was announced that would provide NGLs from Colorado’s Denver-Julesburg Basin to also be delivered into TEP. As all of these various pipeline take-away options are being implemented, pipeline operators are also proposing to implement NGL gathering systems to the various regional processing plants to aggregate the NGLs and make them available to the various exit pipelines.

Oil infrastructure

Collection of oil and condensate at the lease by truck remains a critical transportation component. After aggregation, the oil can upload to a number of area pipelines and then be transported to Cushing via existing, expanded or new oil-pipeline infrastructure.

With significant oil activity in the region, companies continue to build additional storage at Cushing and take-away systems that will gather the crude oil into the storage and trading hub. This aggregation at Cushing continues despite current take-away pipeline capacity issues.

With available exit capacity from Cushing, additional Bakken shale, Canadian oil sands and Denver-Julesburg production will become a part of the overall crude supply mix at Cushing.

The general expectation is that the existing oil transportation capacity bottlenecks will be eliminated with new projects—the first of which is the Seaway Pipeline reversal project.

With a batch capacity of about 150,000 bbl. per day, the project was scheduled for first flow in May 2012. Joint venture partners Enterprise Products and Enbridge Energy are already considering looping the entire project. This looping of Seaway would provide an ultimate capacity of 325,000 bbl. per day when operating in batch mode and transporting mixed crude qualities.

Other proposed oil pipeline debottlenecking projects include TransCanada Corp.’s Gulf Coast portion of the Keystone XL pipeline project. TransCanada also continues to pursue approval to build the northern portion of the Keystone XL project.

Refining infrastructure

The two major refineries in the region have either expanded or revamped their equipment to provide additional capacity.

Valero Energy Corp.’s McKee refinery in Sunray, Texas, now operates at a capacity of 170,000 bbl. per day and has future work scheduled to raise that to 195,000 bbl. per day. Valero has also enhanced its area crude-gathering capability to accommodate the additional volume.

Phillips 66 Co.’s Borger refinery is now part of a joint venture with Canadian company Cenovus Energy Inc. The venture is known as WRB Refining LP. The companies are participating in upstream development projects in the Canadian oil sands and are directing portions of those heavy oil resources to the Borger facility. Regional light crudes and condensate are expected to be included in their product mix.

Growing volumes

Texas Panhandle and western Oklahoma interstate pipelines have seen throughput declines for many years and are pleased to once again see growing volumes from the various Granite Wash regional plays. In most cases, existing pipeline infrastructure should suffice.

These pipelines include ANR Pipeline, CenterPoint Energy Gas Transmission, Natural Gas Pipeline of America, Northern Natural Gas and Southern Star Central Gas Pipeline.

Enogex Pipeline, the area’s largest Oklahoma intrastate pipeline player, is also benefiting from the significant restoration of gas supplies in the western part of the state as is Oklahoma Gas Transmission, another area intrastate pipeline.

Also, Southern Star Central’s regional interstate pipeline has offered to expand its natural gas pipeline system in the Granite Wash area and western Oklahoma to provide shippers with additional regional market outlets for their processed gas. The project, if supported by shipper commitments, would be built in three phases with a total capacity of 236 MMcf per day if fully implemented.