Gathering Systems

Over the past four years, Energy Transfer (ET) has completed several major acquisitions, all aimed at giving the company the additional size and reach it will need to compete in an increasingly consolidated midstream sector. On Wednesday, ET announced one of its biggest purchases yet: a $7.1 billion deal to acquire Crestwood Equity Partners, which has extensive gathering and processing assets in the Permian, Powder River and Williston basins, as well as NGL terminal and storage facilities east of the Mississippi. In today’s RBN blog, we look at how the addition of Crestwood’s holdings will extend ET’s value chain and complement its fractionation assets at Mont Belvieu and its export capabilities at both its Nederland and Marcus Hook terminals.

We’ve written a lot lately about how U.S. E&Ps, whipsawed over the last decade by extreme price volatility and negative investor sentiment, have adopted a new fiscal discipline that de-emphasizes production growth and prioritizes generation of free cash flow to reduce debt and reward shareholders. But what about midstreamers? They too have been buffeted in recent years by volatile commodity prices, eroding investor support, shifting upstream investment patterns, and finally, a global pandemic. Midstream companies face a different set of challenges than oil and gas producers in repairing their balance sheet and restoring investor confidence, however, mostly because midstream investment decisions are determined both by downstream market changes and by E&Ps’ development and production activity — including producers’ ever-increasing focus on the Permian at the expense of other basins. In the encore edition of today’s RBN blog, we discuss highlights from RBN and East Daley’s Spotlight Report on Western Midstream Partners and how the master limited partnership has been working to reduce its debt and make the most of its strong base in the Permian’s Delaware Basin.

We’ve written a lot lately about how U.S. E&Ps, whipsawed over the last decade by extreme price volatility and negative investor sentiment, have adopted a new fiscal discipline that de-emphasizes production growth and prioritizes generation of free cash flow to reduce debt and reward shareholders. But what about midstreamers? They too have been buffeted in recent years by volatile commodity prices, eroding investor support, shifting upstream investment patterns, and finally, a global pandemic. Midstream companies face a different set of challenges than oil and gas producers in repairing their balance sheet and restoring investor confidence, however, mostly because midstream investment decisions are determined both by downstream market changes and by E&Ps’ development and production activity — including producers’ ever-increasing focus on the Permian at the expense of other basins. In today’s RBN blog, we discuss highlights from RBN and East Daley’s Spotlight Report on Western Midstream Partners and how the master limited partnership has been working to reduce its debt and make the most of its strong base in the Permian’s Delaware Basin.

The Shale Revolution created an unprecedented need for midstream infrastructure of every sort — gathering systems, processing plants, storage hubs, takeaway pipelines, fractionators, export terminals, and more — all with the aim of connecting new hydrocarbon supply to demand. Throughout the 2010s, the scope and urgency of this midstream build-out opened up tremendous opportunities for the master limited partnerships, private-equity-backed developers, and other entities with the management skills, financial wherewithal, and dexterity to make these massive projects happen. Now, much of the Shale Era’s required new infrastructure is in place — and COVID and ESG have slowed new-project development to a crawl — putting many MLPs in a bind and leaving private equity firms to wonder where they should invest their money next. Well, there may be an even better set of new opportunities on the horizon — all related to the coming energy transition — and, as it turns out, midstream developers with hydrocarbon experience are uniquely positioned to lead the way. In today’s RBN blog, we discuss how the project-development model that drove the midstream sector’s growth over the past decade is poised for potentially lucrative re-use in the 2020s and beyond.

Plains All American has an extraordinary collection of crude oil gathering systems and shuttle pipelines in the Permian Basin, as well as full or partial ownership interest in a number of long-haul takeaway pipelines to the Gulf Coast and the Cushing hub. As important as many of these individual systems and pipelines may be, it’s the interconnectivity among these assets — and especially Plains’ crude oil terminals in Midland and other West Texas locales — that gives the midstream giant’s Permian infrastructure a value far greater than the sum of its parts. Today, we’ll discuss the important role that Plains’ two terminals in Crane, TX, play in balancing the midstream company’s Permian crude oil delivery network and providing destination optionality.

Every day, another 4.5 million barrels of Permian crude oil begin the journey from wells in West Texas and southeastern New Mexico to refineries in the U.S. and abroad. For most of that oil, it’s no simple trek. Not only does it wend its way through gathering systems and shuttle pipelines to nearby hubs, it often needs to be directed between terminals within those hubs to reach the specific outbound, long-haul pipe that will take it to where it needs to go. We get it — you probably don’t need to know about every nook and cranny in the multi-terminal hubs at Midland, Crane, Wink, and elsewhere in the Permian, but it sure would help to understand generally how the flow of oil to market works, and why a terminal’s ability to provide destination flexibility is so crucial. Today, we continue our series on Permian hubs and terminals with a real-world example of how a barrel of Delaware Basin crude oil moves to Corpus Christi, Houston, or Cushing.

Midland may be the king of crude oil hubs in the Permian, with its immense storage capacity and robust trading activity, but the hub in Crane, TX, is at least a prince — and a particularly interesting one at that. In addition to its 7 MMbbl of tankage for storing, staging, and blending crude (and another 1 MMbbl on the way), Crane offers a slew of inbound pipelines from both the Delaware and Midland basin, plus links to and from the Midland hub and a number of outbound pipelines to both the Corpus Christi and Houston markets. Just as important to know about, are the various intra-hub connections among Crane’s 10 terminals, because they reveal how you can get crude to pretty much wherever you need it to be. Today, we continue a series on crude storage in West Texas and southeastern New Mexico.

The steady growth in Permian crude oil production that everyone was banking on just a couple of years ago didn’t happen as planned. When COVID intervened, Permian oil output sagged and then stabilized at just over 4 MMb/d until last month’s Deep Freeze, when production plummeted and then quickly rebounded. Still, in anticipation of increasing output from the Permian, new takeaway-pipeline capacity from West Texas to the Gulf Coast was built out over 2016-20, as was new crude storage capacity at hubs in the Delaware and Midland basins to support the operation of the new lines. So, with all that construction, the Permian must be sittin’ pretty from a midstream infrastructure perspective, right? Don’t be too sure. From a big-picture perspective, the region has more than enough takeaway capacity, but there are strong indicators — and recent evidence — that in-region storage capacity hasn’t kept pace to be able to handle any hiccups (and worse) that can occasionally rattle the oil patch. Or maybe it’s just that folks don’t fully understand where the Permian’s storage capacity is, how it’s interconnected, and how it’s used. Today, we begin a blog series on crude storage in West Texas and southeastern New Mexico.

The Bakken Shale is being hit especially hard by production cuts this spring. Crude oil-focused producers large and small have been shutting in wells and putting well completions on hold, slashing daily crude output by more than one-sixth. The rig count is down by half in less than two months — to 26, the play’s lowest level since mid-2016 — and thousands of oilfield workers have been let go. All this is happening despite the facts that the Bakken’s four-county core has some of the best shale assets outside the Permian and that in 2017-19 the play was super-hot, with crude production increasing by 50%. That three-year growth spurt spurred the development of a number of new crude gathering systems, many of which now face a period of significant underutilization. Today, we discuss highlights from our new Drill Down report on oil production and supporting infrastructure in the U.S.’s #2 shale play.

First came the “aha moment,” the realization that the Permian’s unusually complex geology — with multiple layers packed with hydrocarbons — is a solvable puzzle, and that the financial rewards for exploration and production companies could be very attractive. Then came the highly competitive scramble to acquire acreage in the most promising parts of the Permian’s Delaware and Midland basins. Now, with many producer’s acreage largely de-risked, competition to provide needed gathering systems and processing plants is white-hot, with some midstreamers in the prolific Delaware offering to write big checks to producers up front for commitments to infrastructure that in some cases is still on the drawing boards. These pay-to-play deals are ricocheting through the Permian business development community — at least in the Delaware. Today, we discuss recent developments in producer/midstreamer relations in the nation’s most active hydrocarbon play.