D-J Basin

Throw out your old production forecasts. Delete your pricing model spreadsheets. Push out the dates on your infrastructure project timelines. Or kill the projects all together. We’ve got a black swan on our hands here, folks. Perhaps a flock of black swans. And while we may see something like normal again in a few months, there is little doubt that it will be an entirely new normal. How do we even think through the wrenching transformations that are working through energy markets? At RBN, we don’t have any more answers than anyone else, but we do have a structured approach to market analysis supported by a set of spreadsheet models that are the core of our School of Energy, scheduled for April 14-15. We think that’s exactly the kind of approach necessary to make sense out of this volatile and chaotic market. And although we have cancelled the in-person conference, we’ve made the decision to GO VIRTUAL! Today, we explain our decision to move forward with the virtual School of Energy and discuss the new material we are incorporating into the curriculum to address today’s market realities.

The Denver-Julesburg Basin in northeastern Colorado and southeastern Wyoming has been producing crude oil for many decades now, but there were only a few crude gathering systems there until just the past three or four years, which were marked by a rapid ramp-up in production associated with the Shale Revolution. The development of these systems was spurred by producers’ desire to more efficiently and cost-effectively transport increasing volumes of crude from their new horizontal wells to new and expanded takeaway pipelines. The gathering systems have been built and added to over time by a combination of entities –– producers themselves, midstream affiliates of producers, and independent midstream companies, many of them backed by private equity. Today, we discuss highlights from our new Drill Down Report on D-J Basin crude oil gathering systems.

Transporting crude oil from the lease to refineries and export docks is like a long-distance relay race. The crude oil gathered from several wells is handed off to shuttle or takeaway pipelines, which then pass it on to regional crude hubs like Cushing, OK — from the hubs, crude is transferred to still other pipes. To get the relay going, the developers of crude gathering systems work closely with their takeaway pipeline counterparts to figure out the most efficient way to effect the first baton pass. Today, we continue our series on crude-related infrastructure in the Rockies’ Denver-Julesburg (D-J) Basin with a look at Outrigger Energy’s existing and planned gathering systems, and their connections to Tallgrass Energy’s still-expanding Pony Express takeaway pipeline.

Occidental Petroleum’s recent acquisition of Anadarko Petroleum made Oxy the #1 producer in the Denver-Julesburg (D-J) Basin and gave it a majority stake in Western Midstream Partners, which owns crude-gathering and other midstream assets in the D-J, the Permian and the Marcellus. While Western Midstream’s gathering focus had been on helping Anadarko meet its own midstream needs, Oxy sees the partnership taking on a broader role as a provider of gathering services to third parties as well. Toward that end, Oxy and Western Midstream a few days ago announced a series of agreements designed to allow Western Midstream to operate as an independent company. Today, we continue a series on crude-related infrastructure in the D-J with a look at Western Midstream’s gathering and related assets owned in part by the basin’s largest oil, natural gas and NGL producer.

Private equity is playing a critically important role in the build-out of crude oil gathering systems in the Denver-Julesburg (D-J) Basin, where rising production volumes — and the expectation of further growth, especially in and around Weld County, CO — are spurring a number of major projects. For proof, you need look no further than ARB Midstream, which, with backing from Ball Ventures’ BV Natural Resources, has developed the largest privately held crude transportation and storage network in the D-J through a combination of acquisitions and new construction. Producers have dedicated a quarter of a million acres to it. Today, we continue a series on crude-related infrastructure in the D-J with a look at ARB Midstream’s fast-expanding asset base there.

Crude oil gathering systems play an important role in a matter critical to producers, marketers and refiners alike: crude quality. Well-designed gathering systems can help deliver crude with the API gravity and other characteristics that refiners desire and are willing to pay a premium for. This has become a particularly big deal in the Denver-Julesburg Basin, where a big expansion of gathering capacity is under way, and where the market gives extra value to “Niobrara-spec” crude with an API of 42 degrees or lower. Today, we continue a series on existing and planned pipeline networks to move D-J-sourced crude from the lease to regional hubs and takeaway pipes with a look at Taproot Energy Partners’ system.

The doubling of crude oil production in the Denver-Julesburg Basin over the past 18 months spurred a rapid build-out of crude gathering systems and other infrastructure. Unlike the sprawling Permian Basin, with its numerous centers of drilling and production activity in parts of West Texas and southeastern New Mexico, the vast majority of the D-J Basin’s incremental crude output has come from Weld County, CO. Understandably, Weld County also is where most of the D-J’s crude gathering systems are located, and where most of the gathering system expansions are being planned and built. Today, we continue a series on existing and planned pipeline networks to move D-J crude from the lease to regional hubs and takeaway pipes.

Crude oil production in the Denver-Julesburg (D-J) Basin has nearly doubled since January 2016 — only the Permian has outpaced the D-J’s growth rate over the same period — and production there now averages about 640 Mb/d. The D-J has just about everything producers want, including an unusually intense concentration of hydrocarbons within four geologic layers, or “benches,” only a few thousand feet below the surface, low per-well drilling costs, and direct pipeline access to the crude hub in Cushing, OK. Production growth in the D-J has spurred a rapid build-out of crude gathering systems and other infrastructure, especially in Colorado’s Weld County, the epicenter of D-J activity, which is located a short drive northeast of Denver. Today, we begin a series on existing and planned pipeline networks to move D-J crude from the lease to regional hubs and takeaway pipes.

After a months-long regulatory delay, two Tallgrass Energy-led natural gas projects have progressed in the past month that will expand takeaway options out of the growing Denver-Julesburg (D-J) production area. Tallgrass in early October began construction on the Cheyenne Connector pipeline and the Rockies Express Pipeline’s Cheyenne Hub Enhancement — aimed at expanding outbound capacity and destination optionality for growing natural gas supplies from the Denver-Julesburg play in the Niobrara Shale, as well as providing a new outlet for Powder River Basin gas. The projects also have secured additional capacity commitments in recent weeks. And in its earnings call last week, Tallgrass said that DCP Midstream, which was already a shipper on Cheyenne Connector, has exercised its option to purchase 50% interest in the project. The influx of gas supply at Cheyenne Hub resulting from these projects will boost eastbound flows on Rockies Express (REX), which is in the midst of recontracting its capacity as existing long-term contracts roll off today. Next, we provide an update on the company’s plans to increase takeaway capacity out of the D-J basin and PRB.

Crude oil inventory levels aren’t the only thing in a constant state of flux at the crude storage hub in Cushing, OK. A year ago, we blogged extensively about Cushing’s major players, storage assets and incoming and outgoing pipelines, as well as plans for new pipes that highlight the hub’s continued significance, even in an increasingly Permian- and Gulf Coast-focused energy sector. A lot has changed since then, though. Some pipeline projects into and out of Cushing have advanced to final investment decisions (FIDs), while others have floundered or foundered. Also, brand-new pipeline projects have been announced, as was a big acquisition that will make Energy Transfer a major player in Cushing storage. Today, we begin a short series on recent developments at the Oklahoma oil hub and how they reflect changes in the ever-evolving U.S. energy markets.