Precarious Times in the Midstream Bakken

Precarious Times in the Midstream Bakken

A recent one-two punch in the Rockies has left oil and gas producers and midstreamers reeling to predict an uncertain fallout from two back-to-back events in an already head-shaking year.

When Okla. City-based Chesapeake Energy officially filed for bankruptcy June 28th, a tsunami of Plan Bs—many already in place—flooded midstream operators that held contracts with producers to gather, process and flow crude oil, natural gas and NGLs from the Bakken, Powder River Basin, South Texas, and Appalachia.

Crestwood Energy

Crestwood Equity Partners LP (NYSE: CEQP) is a publicly traded master limited partnership that owns and operates midstream assets located primarily in the Bakken Shale, Delaware Basin, Powder River Basin, Marcellus Shale, Barnett Shale and Fayetteville Shale.

www.crestwoodlp.com

Now, one week later, the U.S. District Court in Wash., D.C. has handed down a decision to shut down and completely drain the 1,172-mile Dakota Access Pipeline (DAPL). DAPL is a major pipeline artery out of the Bakken, transporting 570,000 BPD of crude oil from N.D., to Ill., where it connects with Energy Transfer’s crude oil pipeline that extends to South Texas markets. Energy Transfer and its DAPL partners have 30 days from July 6 to comply with the ruling. Energy Transfer plans to appeal.

For at least one midstream operator, the untimely crush of events between Chesapeake’s bankruptcy and DAPL has resulted in a go-forward plan to assure its Bakken producer customers in these precarious times.

Houston-based Crestwood Equity Partners’ operations gobble up a chunk of the nation’s midstream map with crude oil, natural gas, and NGLs assets that include gathering and processing, storage, and transportation predominantly in the Bakken, Powder River and Marcellus. Chesapeake just happens to be a longtime Crestwood customer in the Bakken. And Crestwood’s Arrow gathering system there connects to the DAPL.

So, how does a midstream operator get ahead of two hard punches in a week?

You get in front of it. Exactly as Crestwood has. The company immediately issued an update to its shareholders ensuring it had prepared for the Chesapeake bankruptcy and remains well-positioned to maintain full operations throughout the bankruptcy proceedings to include gathering and processing natural gas with more than 320 Chesapeake wells connected to Crestwood’s Jackalope system.

In response to the DAPL situation, Crestwood has assured its customers that, no matter how the ball swings following court appeals, the company can ensure downstream market access via its Arrow system for 100% of its producer customers’ crude. The Arrow system connects to DAPL, Hiland and Tesoro pipelines. In addition, Crestwood can transport crude volumes to its COLT Hub Facility in N.D., by pipeline or truck. COLT is the leading crude oil terminal in the Bakken with multiple pipeline connections, storage capacity of 1.2 MMBbls, and rail loading capacity of 160 MBPD.

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Tallgrass Revs Up Its Cheyenne Connector

Tallgrass Revs Up Its Cheyenne Connector

Kansas-based Tallgrass Energy has announced that both its Cheyenne Connector pipeline and Rockies Express Pipeline (REX) Cheyenne Hub Enhancement Project have now begun commercial service. Tallgrass and DCP Midstream each hold a 50% interest in the 70-mile Cheyenne Connector, which flows natural gas supplies from processing facilities in the DJ Basin in southern Weld County, Colo., to the REX Cheyenne Hub south of the Wyo., border. There, the REX Pipeline connects and intersects with numerous other pipelines—including several that Tallgrass has modified for bi-directional flow—and provides DJ gas first firm access to West, Midwest, Southeast and Gulf Coast markets. DCP is one of the largest oil and gas operators in the DJ.

Tallgrass Energy

Tallgrass Energy, LP is a growth-oriented midstream energy company, transporting crude oil and natural gas from some of the nation’s most prolific basins in the Rocky Mountains, Upper Midwest and Appalachian regions with access to major demand markets in the Rockies, the Midwest, eastern Ohio and points beyond.

www.tallgrassenergy.com

The Cheyenne Connector is fully subscribed at 600 MMCFD. The REX Hub offers 800 MMCFD of capacity with 200 MMCFD expected to be placed into service during 4Q this year. The REX Pipeline, co-owned by Tallgrass and Phillips 66, is among the largest natural gas pipelines in the nation, extending 1,700 miles from northwestern Colo., and Wyo., to eastern Ohio.

Tallgrass Energy owns and operates more than 8,300 miles of natural gas pipelines, 850+ miles of crude pipe, and 300+ miles of water pipeline across the Rockies, Upper Midwest, and Appalachia. Additional projects include the proposed 700-mile Seahorse Pipeline that will transport 800,000 BPD of crude from the Cushing, Okla., hub to the La., Gulf Coast. The 80-mile Iron Horse Pipeline will move crude from the Powder River Basin to the Guernsey, Wyo., oil hub.

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A New Dawn of Carbon Capture

A New Dawn of Carbon Capture

The BLM has recently announced its support to build 2,000 miles of carbon dioxide pipelines across Wyo., which would connect existing coal-fired power plants that emit CO2 with oil field operators that use CO2 to produce more oil from their fields. Read, a network of sorts that will essentially connect emitters with energy producers and serve both.

Occidental Petroleum

Denbury Resources

The State of Wyo., has initiated a plan just for this reason, but is concerned it will get little if any offers with coffers in the current oil and gas environment to construct CO2 pipeline projects that also could offer storage for producers to stimulate their wells. See https://www.eenews.net/stories/1062920197

So, let’s take a step back and see what’s going on with the new carbon capture sector.

Houston-based Occidental Petroleum, one of the largest operators in the West Texas Permian, inked its name more than 40 years ago on Enhanced Oil Recovery (EOR) techniques to recover 10-25%–and as much as 50%–more crude oil. The company has since become the largest E&P using EOR processes that capture and reuse CO2 instead of releasing it into the atmosphere.

Then there’s Denbury Resources, an E&P and midstream operator headquartered in Plano, Texas, which exclusively uses EOR at its reserves in Miss., Texas, La., Mont., N.D., and Wyo. The company injects more than 3 million tons a year of industrial CO2 and sources the Gulf Coast region’s largest, naturally occurring source of carbon dioxide—the Jackson Dome.

With more than 750 miles of CO2 pipelines, Denbury owns and operates:

Gulf Coast

  • The 183-mile DEJD pipeline that runs from the Gulf Coast’s Jackson Dome to Donaldsonville, La.;
  • The 320-mile Green Pipeline that extends from southeast Baton Rouge to south of Houston;
  • The NEJD CO2 Pipeline from Jackson Dome to Donaldsville, La.;
  • Free State Pipeline that transports CO2 from Denbury’s tertiary fields in east Miss.,
  • Delta Pipeline between Jackson Dome from the Tinsley Field to Dehli Field;
  • The 50-mile West Gwinfield Pipeline, which Denbury converted from natural gas to CO2 to service the Cranfield Field.

Rocky Mountains

  • The 232-mile Greencore Pipeline that originates at ConocoPhillips-operated Lost Cabin gas plant in Wyo., to Bell Creek Field, Mont.

In the interim, energy heavyweights like ExxonMobil hold working interests in approximately one-fifth of the world’s total carbon capture capacity, claiming 7 million TPY of CO2 capture.

 

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The Operators:  Outrigger Energy

The Operators: Outrigger Energy

Outrigger Energy knows when and where to pounce when it comes to greenfield midstream infrastructure in basins that sorely need it. Six years ago, this Denver-based operator swooped into the Permian where it constructed gathering pipe and gas plants in two of the basin’s richest growth areas. The company’s Delaware system included more than 140 miles of natural gas gathering pipeline, a processing facility with 70 MMCFD of capacity, and a crude gathering system with 40,000 BPD of capacity. The Outrigger Midland consisted of 100 miles of gas gathering pipeline, 10 MMCFD of processing capacity, and a crude gathering system with 40,000 BPD of capacity. Both were sold in 2017 to Houston-based Targa Resources for a dandy $1.5 billion.

Outrigger Energy

Outrigger Energy II LLC is a private, full service midstream energy company specializing in greenfield project development with current systems operating and under construction in the DJ and Williston Basins.  The company was formed in 2017 after Outrigger Energy LLC sold its assets to Targa Resources and Tallgrass Energy Partners.

www.outriggerenergy.com

Within a year of initial construction of Outrigger’s Permian assets, the company leaped on a new opportunity in the Powder River Basin where it built a complete wellhead-to-market crude oil gathering system that included pipelines, pumps, measurements and other facilities for a capacity of up to 60,000 BPD. That system also was sold in 2017 to Kansas-based Tallgrass Energy.

Then in 2018, Outrigger began development of a tri-stream midstream system in the DJ Basin to handle natural gas, crude oil, and produced water. The 60 MMCFD cryogenic processing plant, gas gathering pipe, and crude oil and produced water gathering system began service after only eight months from the start of construction. The DJ project, certainly closer to Outrigger’s Colo., home, became the company’s first telltale that it planned to narrow its geographic focus to the Rocky Mountain region.

Now, after inking a long-term gas gathering and processing agreement with Exxon Mobil’s XTO, Outrigger is headed to the Bakken where it’s building a 70-mile natural gas pipeline and initial 250 MMCFD cryogenic plant. The processing facility will offer ethane recovery and rejection capabilities with direct access to the Northern Border Pipeline for residue gas and ONEOK’s NGL pipeline.

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