Have It All - Delaware Basin Producers, Midstreamers Scramble to Add Crude Gathering Pipelines

There already are indications that newly available takeaway-pipeline capacity out of the Permian Basin is goosing crude oil production growth there. Flows on those new pipes — Plains All American’s Cactus II and the EPIC system — are ramping up, crude exports are setting new records, and the end of big price discounts for oil at Midland versus Cushing and the Gulf Coast are giving Permian producers an economic incentive to produce more. And more takeaway capacity is on the way, including the 900-Mb/d Gray Oak Pipeline, which is slated to come online in the fourth quarter. Fast-rising production is putting new pressure on producers and their midstream partners to build and expand crude gathering systems and shuttle pipelines — especially in the Permian’s Delaware Basin, which has a lot less gathering pipe in the ground than the Midland Basin and which is poised for phenomenal production growth the next few months and years. Today, we discuss highlights from our second Drill Down Report on Permian gathering systems, this one focusing on developments in the fast-growing Delaware Basin in West Texas and southeastern New Mexico.

The greater Permian Basin, which includes all or part of 54 counties in the two states, has been producing crude oil in commercial volumes since the early 1920s. By 1960, the region’s crude output was averaging 1 MMb/d, and through most of the 1970s, production there hovered around the 2-MMb/d mark. That’s a lot of oil, and transporting it all to market efficiently and economically required the development of extensive crude gathering systems. As followers of the Permian’s up-down-and-up-again story know, however, the region’s crude output declined over the next three decades to less than 1 MMb/d, leaving unused much of the gathering capacity that had been installed. So, when Permian production finally started rebounding in the early 2010s with the use of horizontal drilling and hydraulic fracturing there was a good bit of gathering pipe in the ground, much of which producers could use to help gather crude produced at their new horizontal wells. By 2016, though, Permian production was back above 2 MMb/d, crude gathering pipelines — and takeaway pipes — were filling up fast and a big push was underway to expand existing systems and build new ones.

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