The mechanics of gathering and processing natural gas produced from a mountainous region pose challenges that most operators working in flat terrain do not face. To overcome such challenges, a unique partnership was formed between Kinder Morgan Energy Partners LP and the Southern Ute Indian Tribe in southwestern Colorado.

That partnership, known as the Red Cedar Gathering Co., takes natural gas produced from the region to pipelines for transportation to markets in New Mexico, Arizona and, ultimately, California.

Albert Brown, president and chief operating officer of Red Cedar Gathering Co., says the gathering and gas treating company collects natural gas from more than 900 wells, representing 23 producers, in the Ignacio Blanco Field in La Plata County, Colorado. The company is jointly owned by the Southern Ute Indian Tribe, which holds a 51% stake, and Kinder Morgan Energy Partners LP, which holds the balance.

In 2006, Red Cedar Gathering Co. purchased the Coyote Gulch Treating Facility.

The total throughput of the system is about 600 million cubic feet (MMcf) per day of natural gas. Red Cedar is based in Durango, Colorado, and has about 140 employees. The name of the company stems from a preference of the Southern Ute Tribe to use the word "red" in its energy assets.

The Southern Ute Tribe itself is relatively small in terms of population, with about 1,400 members, but its energy, real estate, and private equity assets have a market value of several billion dollars "It's not an insignificant entity," Brown says.

The cooperation between Kinder Morgan and the Southern Ute tribe is a uniquely working partnership.

"Generally there is a consensus on the board. There are times when the Tribe is more conservative than Kinder Morgan. There are times Kinder Morgan is more conservative than the Tribe," Brown says. The seven-member board of directors includes four representatives from the Tribe and its business entities and three from Kinder Morgan.

Altogether, the system is extensive. "We have 750 miles of gathering pipeline ranging in size from four inches to 30 inches. We have 70 compressors at 22 compressor stations located across the asset base. We also have compressors at two of our treating plants. And our Arkansas Loop Plant has two treating trains," he says.

Ed Mason, an operator at Red Cedar Gathering Co., balances the gas flow to one of the dehydration units at the Simpson Treatment Plant, which removes CO2 from the gas. Source: Kinder Morgan Energy Partners LP.

The system

Also, Red Cedar owns the Simpson Treating Plant and the Coyote Gulch Treating Plant. Red Cedar Gathering Co. has a complete SCADA system, which is operated on a 24-hour basis from a dispatch and control center based in Durango, Colorado. Elsewhere, about 99% of the gathering and processing assets are located within the confines of the Tribe's reservation.

Red Cedar's three main sources of revenue are fees for gathering and treating the gas, compression services and marketing gas from the producers on its system. Gas is produced from conventional and coal seam sources in the Mesa Verde group of the San Juan Basin geologic province.

The coal-seam gas, which is about 98% of the production from the region, generally has a low British thermal unit (Btu) count and some carbon dioxide (CO2) associated with it. The produced gas can range from near pipeline quality gas to 45% CO2 and 55% methane, and anything between those two extremes.

Solix Biofuels, a small biofuels algae plant that is also a joint venture of the Tribe, exists near one of the gas-treating plants and consumes some of the produced CO2 to feed the algae. The balance of the CO2, which belongs to the producers, is vented.

The Tribe's ownership of the assets dates back to 1994, when it bought a portion of West Gas, a public service company from Colorado. Since then, it has acquired or built additional assets. Red Cedar Gathering has gradually expanded the gathering system from the 1990s to the present. Some years, it has built on only a handful of miles to the system. During others, it has added as many as 30 to 40 miles. The expansions in the gathering system stem from the needs of producers in the region.

The major producers in the region include BP, Samson Resources Co. Inc., Red Willow Production Inc. (one of the Southern Ute's exploration and production arms), XTO Energy Inc., Chevron Corp. and Energen Resources Corp. As operators of the gathering system, Brown says they are proud of their record of reliability for producers.

"We have operating performance approaching 99% runtime for compression. That's always a positive for producers, knowing that that their gas is going to flow," he says.

The region's peak natural gas production occurred during the year 2000. Today, production volumes are about 15% below that, and recent production volumes on the system have remained relatively flat, because production in San Juan basin is gradually declining. Brown suspects that it will continue to slide.

"I think the San Juan has achieved its peak," he says. "It is a mature play. Over time it will decrease."

Once treated, the Simpson Treating Plant delivers natural gas to transmission customers through outlet equipment that includes pipes and flow meters as a supplemental fuel gas to increase the overall plant efficiency.

Planned expansions

Despite the eventual decline, a couple of new projects will increase Red Cedar's capacity or volumes in the near term.

A new facility, the Simpson treating plant, began operations in early April. It includes a 765 gallon per minute amine treater, says Brown

"Also, we just installed the Salvador Canyon compressor station, with 7,000 horsepower of electric-driven compression. That started up in late June, and we expect it will bring upwards of 60 MMcf per day of new gas into the system," he says.

A third expansion project is still underway. It includes the addition of 7 miles of 30-inch-diameter pipe, 10 miles of 16-inch pipe and about 14 miles of 20-inch pipe. The additional gathering lines will come online in early January 2012 and will peak at some 100 MMcf per day in the next three to five years.

The gas produced into the system goes into Kinder's TransColorado pipeline and the Transwestern and El Paso systems, which take it into New Mexico and then west to Phoenix and California.

The Simpson Treatment facility is one of three major treating plants on Kinder Morgan’s Red Cedar system that provides high-pressure compression, CO2 removal, filtration and dehydration for natural gas produced from the area.

The system's remote location can pose operational challenges, particularly in the winter, when the weather and mountain roads can make portions of the gathering system difficult to access. "It's not like West Texas or Oklahoma, where everything is nice and flat," Brown says.

This year, the snowfall was less than in previous years, so access was not as big a problem. But in previous years, Red Cedar had to use helicopters to get in to specific sites when the roads were not passable and the operators needed access to specific locations to get accurate production data. "Fortunately, we haven't had to do that recently," he says.

The extreme elevations of building and operating a gathering and processing system in a mountain climate also pose specific challenges. Much of the system crosses multiple rivers and streams, which swell with spring runoff.

"The terrain is extreme. A pipe may go up one ridge, down a canyon and then up the ridge on the other side," Brown explains. "It's just more difficult to operate than it would be if it were a generally flat system."

In addition, because most of the gathering system is located on an Indian reservation, many of its operational and policy decisions go through a different, and oftentimes longer, approval process than other gathering and processing companies face. The Bureau of Indian Affairs must be kept informed of many of the operational decisions at Red Cedar. Whenever Red Cedar needs to lay new lines, it must go through an extensive study of architectural and cultural impact studies, then get approval of the Bureau of Indian Affairs. If a proposed expansion runs across an ancient burial ground, for example, the line must be rerouted.

Yet, despite the challenges, the system works well, and is a boon to the area's exploration and production companies. Both Kinder Morgan and the Tribe plan to continue its operations for years to come.