FORT WORTH, Texas—Navitas Midstream Partners is not afraid of fixer uppers as long as it is in the right neighborhood, according to Bryan Neskora, the company’s COO and founding partner.
The Permian Basin is apparently the place to be.
The region has wells with 7,500-foot laterals with more frack stages than he has ever seen being drilled and completed for around $4.5 million. The Permian has “incredible” stacked pay, costs have fallen and E&Ps are producing wells with significant results—even at sub-$50 oil.
“A lot of people are starting to look at the potential of the Permian Basin not in terms of years but in terms of generations,” Neskora told a full house at Hart Energy’s DUG Permian Basin midstream pre-conference. “If we see a significant increase in commodity prices, I think you’ll see even more activity return.”
Poised to grow along with partners such as Encana Corp. (NYSE: ECA) and Apache Corp. (NYSE: APA), the midstream sector is better preparing itself for what heads its way. For Navitas, opportunities lie in greenfield sites and acquisitions, even if the assets are in need of repair.
The 2-year-old company acquired natural gas gathering and processing assets—including about 1,000 miles of low and high pressure natural gas gathering pipelines and two cryogenic processing plants with a combined capacity of 65 million cubic feet per day (MMcf/d)—from DCP Midstream (NYSE: DPM) in September 2015.
Spraberry ‘Fixer Upper’
Neskora likened its Midland Basin Spraberry system, which serves the Martin, Midland and Glasscock counties, to a fixer upper in a good location. The company found 192 leaks, Neskora said. At least 70% of them have been repaired as the company targets an August project completion, having already seen a reduction in lost and unaccounted for gas.
In addition, “We’re replacing and doing engine swings on all of our compressor stations,” Neskora said, noting the company added 11,000 horsepower of new compression at its existing stations and expects its new station in Northeast Martin County to come online in the next couple of weeks.
“New compression, keeping field pressures low and keeping compression on is one of the key things that we’re trying to do to make our systems more reliable. In addition to that, we’re also replacing our high pressure trunk lines. So we are really building a new spine on the Spraberry,” he said.
Works in progress include:
- Looping a portion of its existing Spraberry system mainline with a new 20-inch high-pressure pipeline. The project is expected to be complete in late 2016 or early 2017.
- Working with Encana in Howard County, Navitas will gather gas into a new system of low-pressure gathering lines, compression stations and a 16-inch pipeline into Big Spring.
- Constructing a new 60 MMcf/d cryogenic processing plant, Newberry, near its existing Spraberry complex to accommodate gas producers, boosting its processing capacity to about 155 MMcf/d and adding carbon dioxide treating and nitrogen rejection capabilities.
- At the Spraberry plant, compressors are being overhauled, control systems upgraded and analyzers installed.
- Enhancing the Crane system it purchased from Apache in December by adding a 200 gallon per minute amine treater and expanding the plant with a new high pressure pipeline.
“We’re making a lot of hay getting ready for the return of drilling,” Neskora said.
Navitas isn’t the only one. EnLink Midstream (NYSE: ENLC) is also busy expanding compression options and improving infrastructure as it eyes producers’ successes in fields.
EnLink has invested more than $1.1 billion in the Permian Basin over the last 18 months, including acquiring midstream assets from producers. Among the latest was EnLink’s 2015 acquisition of Matador Resources’ (NYSE: MTDR) gathering and processing assets in the Delaware Basin for about $143 million and acquiring a 50% ownership interest in the Deadwood natural gas processing facility from a subsidiary of Apache for about $40 million.
As prices improve, the midstream sector must be prepared to handle growing production with an infrastructure investment, said Andrew Deck, senior vice president, Permian Basin, for EnLink Midstream. He referred to IP rates of 800 to 1,600 boe/d, encouraging spacing tests, break-evens that have dropped from $80-$90 to $30-$40, technology improvements and inventory of drilled but uncompleted wells.
“Over the last 18-24 months, producers have drilled wells twice as fast, they drilled wells at half the cost and wells generally have about twice the reserves as they used to have,” Deck said. That’s about four times the reserves for the same capital investment.
“As the challenging conditions are showing signs of improvement, I’m confident we will emerge smarter and stronger,” Deck said. “The infrastructure requirements are going to grow significantly, and this growth is best accomplished through partnering relationships between midstream and producing companies.”
He recalled in 2011-2012 when the first wave of incremental production came on and outstretched existing infrastructure in the Permian. “We all watched a lot of gas being flared and we wondered if our plans associated with growing a successful business was going to be derailed by lagging midstream infrastructure,” he said.
According to a report by the Interstate Natural Gas Association of America, about $522 billion of infrastructure investment will be needed through 2035. This includes needs in the Permian.
“Planning and partnering are going to be essential for us to be successful,” Deck said. Takeaway capacity is not a major concern right now, but that is not the case with gather infrastructure—primarily low pressure piping and compression used to aggregate the volume and bring it to the processing facility.
“Timing is going to be essential going forward,” Deck said, adding midstream companies should think about tasks such as:
- When to order equity units in advance to get them in place on time;
- Leasing or contract service options; and
- Deciding whether to have fewer larger stations available or a larger number of smaller stations spread across the producing area. The latter is EnLink’s strategy as it interconnects on the low and high pressure sides for greater reliability.
Standardized design can also be beneficial in timing and cost when confronting compression challenges ahead, he said.
“Neither the producing company nor the midstream company can be successful without the other,” he added.
Velda Addison can be reached at email@example.com.