They’re drilling for hydrocarbons with the urgency of the 1920s, when Ira Yates sold leases from his front porch in Pecos County, Texas. This time, they’re going at it horizontally, and for midstream operators this era of the Permian is a bonanza.
“We’re seeing fantastic returns in the play—40% to 100% [internal rates of return],” said Tomas Ackerman, managing director of investment firm Natural Gas Partners. “It’s one of the best plays in the world.”
The Permian’s EOR activities have driven demand for CO2, which Kinder Morgan Energy Partners LP plans to meet by building the 213-mile, 300 million cubic feet per day (MMcf/d) Lobos Pipeline to move CO2 from Arizona to the Cortez Pipeline in New Mexico. The $1 billion project is expected to be in service during 2016.
Drilling escalation is powering a surge in daily crude production, forcing midstream operators to scramble to avoid bottlenecks.
“We are excited about the growing production forecast in the Permian Basin,” said Bruce Heine, Magellan Midstream Partners LP’s director of government and media affairs. Tulsa, Okla.-based Magellan has two major pipeline systems originating in the Permian.
“Our Longhorn Pipeline, which has been safely transporting crude oil from the Permian to Houston since the second quarter of 2013, has a capacity of 225,000 bbl/d [barrels per day],” Heine said. “We are currently increasing the capacity of Longhorn to 275,000 bbl/d.
“Our second project is the BridgeTex Pipeline, which is a 50/50 joint venture with Occidental Petroleum,” he says. “This system, which is currently under construction, will have a capacity of 300,000 bbl/d when it becomes operational in mid-2014.”
Ackerman’s Natural Gas Partners is backing PennTex Midstream Partners LLC’s expansion in the Delaware Basin, the southwestern slice of the Permian. PennTex purchased a majority interest in Atlantic Midstream LLC in February and renamed it PennTex Permian. By the end of the first quarter PennTex Permian had put low- and intermediate-pressure gathering pipelines and associated compression into service. The company sees a July completion date for its 60 MMcf/d cryogenic natural gas processing plant in Reeves County, Texas, in the Wolfcamp play. Ackerman looks forward to being part of the Permian’s ramping up, especially in terms of investment opportunity in the midstream space. Technological advances in drilling and completion give the Permian an economic edge over other plays.
“In the midstream business, the key is to be responsive to a producer’s needs,” he said. “That’s the key to being competitive in a hot region like the Permian: You have to deliver on what you promise.”