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Tallgrass, Silver Creek create joint venture for Powder River Basin crude line

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Tallgrass, Silver Creek create joint venture for Powder River Basin crude line

Tallgrass Energy Partners LP and Silver Creek Midstream LLC agreed to form a joint venture to develop a new crude oil pipeline in the Powder River Basin of Montana and Wyoming that will connect producers to refineries on Tallgrass' Pony Express pipeline system and the Cushing, Okla., oil hub.

The Iron Horse pipeline would deliver crude oil from the Powder River Basin to Guernsey, Wyo., connecting Silver Creek's new gathering system to the under-construction Tallgrass Guernsey terminal, according to a Feb. 7 news release. It is designed to have an initial capacity of roughly 100,000 barrels per day, with potential expansion capacity.

The operators of Iron Horse and Pony Express would establish a joint tariff for producers and marketers in exchange for the direct access.

Tallgrass agreed to contribute about 40 miles of pipe running into Guernsey that is switching over from gas service. The pipe would become part of an 80-mile, 16-inch-diameter pipeline that would also include 40 miles of new build. Tallgrass would be in charge of operations and own 75% of the full pipeline, while Silver Creek would own the remaining 25%.

Separately, Tallgrass agreed to divest a 50-mile crude oil gathering system in the Powder River Basin to Silver Creek. The asset would help move crude into the Silver Creek Midway terminal, which would be connected to the Iron Horse pipeline. The deal would solidify Silver Creek's presence in the basin as it continues to develop additional gathering facilities serving the core of the basin.

Tallgrass plans to invest about $150 million in the joint venture, not including the proceeds from the sale of its gathering system. Both transactions are expected to close later in February.