trending Market Intelligence /marketintelligence/en/news-insights/trending/Wxz0Is4dC0_Q9FwQC3Do2A2 content esgSubNav
In This List

Midstream looks to cash in on Permian Basin boom

Blog

European Energy Insights - May 2021

Blog

Metals & Mining Insights May 2021

Blog

[Report]: 2021 Corporate Renewables Outlook

Blog

Corporate Credit Risk Trends in Developing Markets An Expected Credit Loss ECL Perspective


Midstream looks to cash in on Permian Basin boom

The Permian Basin's quiet days are long gone, with the oily play experiencing a surge in activity, and the natural gas midstream industry is searching out opportunities to take advantage of associated gas and liquids production infrastructure needs.

The formerly prolific play was considered obsolete since the days of conventional production's dominance, and most drillers were focused on shale plays like the Eagle Ford, Bakken and Marcellus. But the basin is again arguably the world's premier oil and gas play, with reserves that could outlast demand for oil itself, some analysts say. And the cost to get in is considerable.

Since October 2016, there have been at least 10 acreage deals made in the Permian that have a value of more than $500 million. The prices are steep. For acreage in the Delaware and Midland basins, both part of the larger Permian, buyers have paid as much as $57,000 per acre. In almost all the deals, the average cost per acre exceeded $25,000. In seven major deals reported in the Appalachian region since June 2016, by contrast, no per-acre price reached $25,000.

"Some of the deals have been eye-popping," said Regina Mayor, KPMG national sector leader for energy, natural resources and chemicals. "What I've come down to is that the industry believes it's probably timeless. The Permian becomes so attractive because it's prolific, there's existing infrastructure … and there's a sense that we haven't discovered everything that's out there yet."

The shale boom altered the equation for the Permian, a leading oil producer in much of the 20th century until the OPEC nations were able to squeeze it out. Now unconventional producers are reanimating the play by finding "stacked pay" opportunities.

"It's gone from a billion barrels to 75 billion barrels, just in the Spraberry/Wolfcamp," Pioneer Natural Resources Co. Chairman Scott Sheffield told S&P Global Market Intelligence. "You have 12 to 16 zones ... to play around with for the next 90 years, while in the Eagle Ford [you] have one or two zones. The Bakken is just a couple zones. That's what drives the Permian over the rest of the play."

As a result, the boom is encouraging competition among big midstream players. Hoping to capitalize on booming production in the Permian Basin, NAmerico Energy Holdings LLC unveiled its plans for the Pecos Trail pipeline to move natural gas from West Texas to the Gulf Coast.

The company said April 3 that it formed Pecos Trail Pipeline Co. to construct a 468-mile intrastate gas system from West Texas to several endpoints in the Corpus Christi area. The 42-inch-diameter pipeline is designed to transport up to 1.85 Bcf/d into Texas intrastate pipelines ? Spectra Energy Corp's proposed Valley Crossing pipeline, the NET Mexico header and Cheniere Energy Inc.'s Corpus Christi LNG export project header system ? subject to shipper commitments. NAmerico anticipates a 2019 in-service date and said it will develop the project in partnership with the newly formed energy infrastructure investment fund Cresta Energy.

Jeff Welch, managing partner at NAmerico Partners LP, told S&P Global Market Intelligence that the pipeline makes sense because of market growth from pipeline exports to Mexico as well as LNG exports, despite competition from similar projects such as Kinder Morgan Inc.'s Gulf Coast Express pipeline that aim to take advantage of increasing activity in the Permian.

The Permian "is getting a very significant portion of capital budgets from exploration and production companies in the area and quite a bit of attention from those not in the area that want to make an entry." He added, "Our natural gas pipeline solution reflects the fact that we need incremental capacity out of the basin starting as early as 2019."

Kinder Morgan responded that the Pecos Trail announcement validates the need for its 1.7-MMDth/d Gulf Coast Express pipeline, also scheduled to begin operating in 2019.

"The fact that other parties are looking at similar projects lends support to the fundamental need for our project," spokeswoman Melissa Ruiz said in an email. "We believe the interconnectivity and market optionality that we provide through integration with our existing pipeline and storage network provides Permian producers and other shippers a very attractive option."

Kinder Morgan on April 4 also launched an open season for firm natural gas transportation services on its El Paso Natural Gas Co. LLC pipeline system from various receipt points in the Permian Basin production area to the Waha Hub.

The open season provides for up to 152,000 Dth/d of existing capacity, 102,000 Dth/d of which is expected to become available by May 1.

"Should interest for transportation service exceed the available capacity offered in this open season, EPNG could make system modifications to increase takeaway capacity by up to 920,000 Dth/d from the Delaware Basin production area in New Mexico and Texas to interconnections at Waha with four existing intrastate pipelines, Kinder Morgan Texas Pipeline LLC's proposed Gulf Coast Express Pipeline and the newly constructed Trans-Pecos Pipeline," said Kinder Morgan Natural Gas West Region President Chris Meyer.

The system modifications will allow for an expansion of west-to-east natural gas transportation capacity for receipts on El Paso's lines 1600, 2000, 1100, 1103 and 1110 in Texas and New Mexico. Pending facility modifications required to meet overall market demand, the expansion is expected to become available early 2018 or mid-2019.