Trace Midstream CEO expects step up in Permian gas volumes as shut-ins end

Trace Midstream sees potential for strong natural gas production growth in the Permian Basin in the second half of the year as prices at Waha turn positive and producers bring back shut-in volumes, CEO Josh Weber said in a June 25 interview with Platts, part of S&P Global Energy.

"Just in the past couple of weeks, we've seen a lot more production return to sales because of some positive price movements," Weber said. "Our thesis is that from now through the end of the year, that will continue to happen."

The Waha spot price rose above zero for the first time in over four months for June 16 flows, and averaged $1.67/MMBtu during June 18-25, according to data from Platts, part of S&P Global Energy. The 570 million cubic feet/day Gulf Coast expansion officially started service June 23, after commissioning activities through much of June. Egress will receive a stronger boost later in the year when two greenfield pipelines, Hugh Brinson and Blackcomb, enter service.

"Obviously, there's new egress coming online in the fourth quarter, and we think that's going to be big to alleviate these curtailments and then also provide some runway for accelerated development into a pretty quality crude pricing environment."

Even though some of its customers curtailed production due to the negative gas prices, they did not slow down their overall activity.

"When oil prices went up, we saw producers actually accelerating some wells," Weber said. "It's been really interesting because they may be bringing on new wells fairly aggressively while shutting in older vintage wells with higher gas-to-oil ratios."

For now, there has been no noticeable impact on overall Permian Basin production from the new GCX capacity. Modeled dry gas production averaged 23.5 Bcf/d June 25, compared with 23.7 Bcfd June 1-24 and 24 Bcf/d, according to S&P Global Energy CERA data.

That could suggest a more noticeable impact on production from July 1. "I think we'll see what bidweek does and where July settles," Weber said. "And then I think that will give us a pretty good indication."

Processing plant

The company said June 24 it would construct its first gas processing plant, the 250 million cubic feet/day Apollo plant in Eddy County, New Mexico, along with 36 miles of new gathering pipeline and two new compressor stations.

Apollo is supported by long-term gas contracts with new and existing customers and is expected to enter service in the fourth quarter of 2027.

When complete, Trace Midstream will operate over 200 miles of pipelines, 14 compressor stations and more than 125,000 horsepower of compression in Eddy and Lea Counties in New Mexico. Its system can gather and transport up to 800 MMcf/d.

"A lot of customers are seeking a one-stop shop for gathering and processing," Weber said. "So we felt like in order to compete and grow the business, we needed to be sure and offer that."

There is also a move toward increased redundancy, Weber said. "The gas is obviously a secondary revenue stream here, second to the crude oil, and producers want to just ensure that it flows every day."

Trace Midstream is bullish on continued growth in the Northern Delaware Basin.

"There's less and less quality inventory in the Permian, a lot of it's been developed," Weber said. "I think as producers are seeking additional inventory and locations, they're expanding the basin really in all directions and kind of testing the limits. And so I think you'll continue to see an expansion into the Northern Delaware."

Weber pointed to the record $4 billion onshore oil and gas lease sale in May. Devon Energy dominated the auction, acquiring 16,300 net undeveloped acres in New Mexico's Delaware Basin for $2.6 billion.

"We saw the level of activity there and companies getting really aggressive acquiring new acreage to have that inventory, to have running room for years to come," Weber said.