Lotus Flower(s) - Lotus Midstream's Fast-Growing Role in Permian Crude Transportation

The Permian Basin has attracted more than its share of midstream start-up companies over the past few years, and for good reason. The region has experienced big gains in crude oil, natural gas and NGL production, and that’s put stress on the Permian’s already significant pipeline infrastructure and spurred the development of many new projects. One new midstreamer that’s made a big splash is Lotus Midstream, which, since it was formed in early 2018, has partnered with some of the Permian’s biggest players — including ExxonMobil and Plains All American — to advance the now-sanctioned 1.5-MMb/d Wink-to-Webster crude pipeline. It’s also acquired Occidental Petroleum’s (Oxy) Centurion pipeline system, which includes a lot of crude gathering pipe and is one of the two main takeaway links between the Permian and the Cushing, OK, hub. What’s Lotus up to, and how is it shaping Permian crude transportation? Today, we examine what has quickly become one of the largest midstreamers in the U.S.’s hottest shale play.

Crude oil production in the Permian now tops 4.2 MMb/d, twice what it was only two and a half years ago. That phenomenal run-up in crude output for a while caused some serious pipeline-takeaway constraints and huge price differentials between the crude hub in Midland, TX, and hubs in Cushing and along the Gulf Coast — topics we’ve covered extensively in the RBN blogosphere. More recently, though, the focus has shifted to all the new crude gathering and takeaway pipelines being developed — and coming online — that already have improved things in a big way. In our 14-part Have It All blog series on Permian crude gathering systems, we reviewed many of the smaller-diameter pipeline networks in the region’s Midland and Delaware basins. In Hard Hat and a Hammer, we looked at the more than 600 Mb/d of incremental takeaway capacity that was added between the fall of 2018 and the spring of 2019 — these projects, in order of completion, include Plains’ new Sunrise II pipeline from Midland to Wichita Falls, TX; a 40-Mb/d expansion of Magellan Midstream Partners, Plains and OMERS Infrastructure Management’s BridgeTex Pipeline; a 45-Mb/d expansion of Enterprise Products Partners’ Midland-to-ECHO I pipeline; and the conversion of one of Enterprise’s Seminole NGL pipelines to what is now the 200-Mb/d Midland-to-ECHO II pipeline. We also looked at two new pipelines that within the past few weeks have added nearly 1 MMb/d of incremental capacity from the Permian to the Corpus Christi area: EPIC Midstream’s EPIC NGL Pipeline, which was temporarily repurposed to transport up to 400 Mb/d of crude oil until the company’s 590-Mb/d EPIC Crude Pipeline starts up in January 2020, and Plains’ 585-Mb/d Cactus II pipeline.

Still more new takeaway capacity is on the way, including the 900-Mb/d Gray Oak Pipeline (a joint venture of Phillips 66 Partners, Marathon Petroleum, Rattler Midstream and Enbridge) to Corpus Christi and the Houston area (due online in the fourth quarter of 2019), and the 1.5-MMb/d Wink-to-Webster Pipeline (W2W; scheduled to start up in the first half of 2021) — the latter of which brings us to today’s topic: Sugar Land, TX-based Lotus Midstream. Lotus was formed in January 2018 by a team of former midstream executives with financial backing from EnCap Flatrock Midstream, a private equity firm established in 2008 to invest in midstream assets. Lotus’s plan was to pursue opportunities to develop and/or acquire pipelines and other infrastructure in the Permian, and the stars aligned for the company almost instantly. By about this time last year, Lotus had deals in hand to (1) partner with Plains and ExxonMobil on the Wink-to-Webster (W2W) crude oil pipeline from West Texas to the Houston area (other partners have joined since — more on this in a sec), and (2) acquire Oxy’s Centurion pipeline system, which as we said in our introduction includes both gathering and takeaway pipelines.