Texas Pipeline Story; Targa Update -- October 13, 2014

Wells coming off the confidential list over the weekend, today have been posted.

RBN Energy has an interesting pipeline story. Normally I would not be all that interested in this story -- on the surface it seems to be a "Texas" story but there's much more to it, and puts the Bakken into perspective.

The story is this: a new Permian/Texas pipeline is now on-line. A year ago it was expected this new pipeline would solve the Permian takeaway problems; now, it turns out, it won't even come close.

Some data points / observations from the linked RBN Energy story:

BridgeTex Pipeline: 400-mile pipeline from eastern part of the Permian Basin to Houston, came online at end of September, 2014; online five months late

Had been expected to solve the Permian Basin takeaway problems; did not -- two problems:

• turns out the pipeline is not big enough
• turns out the pipeline is not long enough

First, the "not long enough" problem: the pipeline did not extend far enough into the Permian Basin. It turns out that:

Most new Permian production is occurring in the Midland and Delaware basins of the Permian and is centered well to the west of Colorado City. That means crude has to get to Midland, TX, and then to Colorado City before it can be shipped to market on BridgeTex. 

As a result, BridgeTex is unable to provide an overnight solution to the Permian crude bottleneck because crude is still stranded west of Midland, waiting for new capacity to Colorado City. That means BridgeTex is unlikely to provide anything more than limited relief until another new pipeline, being built as we write, is completed at the beginning of next year. That is the Plains Sunrise pipeline, Sunrise is expected online on January 1, 2015 and will provide 250 Mb/d of additional capacity between Midland and Mesa – helping to unblock the logjam.

The second problem, and this really puts the Bakken into perspective: RBN Energy estimates that crude oil production in the Permian reached 1.75 million bopd (October, 2014), up about one-half million bopd since January, 2013. RBN Energy expects production to increase by another 750,000 bopd to 2.5 million bopd by 2020, and some think it could go as high as 3.0 million bopd. And this is just the Permian. The Eagle Ford is another Texas / Mexico play.

Current constraints are probably resulting in a $5 - $6/bbl level discount from WTI on stranded Permian oil.

The good news for the Bakken: it looks like operators in the Permian are still focused on getting their oil to Houston, leaving the west coast (California) for the Bakken.

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Targa: Another Pipeline Story For The Archives

Bloomberg is reporting:

Targa Resources Partners LP and Targa Resources Corp. agreed to buy Atlas Pipeline Partners LP and Atlas Energy LP for a total of about $7.7 billion.

The $5.8 billion transaction, including $1.8 billion in assumed debt, represents a 15 percent premium for Atlas Pipeline holders.

As part of the deal, Atlas Energy will spin off some assets before it’s acquired by Targa Resources for $1.87 billion. 

The deal helps Targa expand its market for processing and exporting natural gas liquids.

The transactions are among more than a dozen pipeline deals announced this year amid consolidation of an industry that’s dominated by tax-advantaged master-limited partnerships and often complex corporate structures.

The combined company would have a presence in the Permian Basin, Eagle Ford and Bakken formations, where hydraulic fracturing and horizontal wells have unlocked huge oil and natural gas resources. 

The companies being bought:

• Atlas Energy: Atlas Energy owns the general partner of Atlas Resource Partners, L.P. active in oil and gas production in the Barnett Shale (TX), the Appalachian Basin, the Raton Basin (NM), the Black Warrior Basin (AL), and the Mississippi Lime (OK). Atlas Energy also owns the general partner of Atlas Pipeline Partners, L.P. a midstream energy service provider engaged in the gathering and processing of natural gas in the Mid-Continent region of the U.S., namely in Oklahoma and Texas.
• Atlas Pipeline Partners: mostly Oklahoma and west Texas. 

Targa is mostly in the south but has Bakken presence in Watford City (which they call "Waterford City" at their website):

• Little Missouri Gas Plant (Watford City, ND)
• Johnsons Corner Terminal ("Waterford City, ND)

Targa at the blog:

• announced a new 200 mmcf/d natural gas processing plant
• back in 2012, Targa buys Saddle Butte Pipeline LLC’s Williston basin crude oil pipeline and terminal system along with its natural gas-gathering and processing operations for $950 million