Have It All, Part 12 – EagleClaw Midstream’s Expansion Into Permian Crude Gathering

Publish date: 07/21/2019
Published by: Housley Carr
Article Link: https://rbnenergy.com/have-it-all-part-12-eagleclaw-midstreams-expansion-into-permian-crude-gathering

Acquire, expand, and acquire again. That’s proven to be a successful strategy for a number of midstream companies providing crude oil and natural gas gathering services in the Permian Basin. In the past couple of years, the hydrocarbons-packed shale play in West Texas and southeastern New Mexico has been experiencing major gathering-system buildouts and Pac-Man-like acquisitions that aggregate small and midsize systems into regional behemoths. A case in point is EagleClaw Midstream, which has used the acquire-and-expand approach to great effect, most recently with the concurrent acquisition of Caprock Midstream Holdings and Pinnacle Midstream — two deals that, by the way, gave previously gas-focused EagleClaw a strong foothold in Permian crude gathering. Today, we discuss EagleClaw and its holdings in the Permian’s Delaware Basin.

We’ve now posted a dozen blogs in our series on Permian crude gathering systems, and a key takeaway so far is that these systems — now with thousands of miles of pipeline among them — have been developed by folks with a strong entrepreneurial streak. In many cases, these companies with extensive midstream experience (and, often, private-equity backing) started out small, building or acquiring gas and/or crude gathering systems of only a few miles each. Then they expanded them, and soon thereafter, they either bought out nearby systems or got bought out by someone else. Today’s is another story like that.

Before we turn to EagleClaw Midstream, we’ll take a quick look back at what we’ve discussed in this series so far. In Part 1, we looked at the Beta Crude Connector, a 100-mile-plus, 150-Mb/d system that a joint venture of Concho Resources and Frontier Energy Services is developing in the Midland Basin to serve Concho and other producers. Part 2 considered Reliance Gathering’s 185-Mb/d pipeline network — also in the Midland — which was originally developed to serve the affiliated producer Reliance Energy, but has since undergone a number of expansions to serve other producers too. In Part 3, we reviewed San Mateo Midstream’s crude gathering systems in the Delaware Basin — one in Eddy County, NM, and the other in Loving County, TX — and the company’s plans for two new systems on the New Mexico side of the state line. Part 4 focused on Medallion Midstream’s fast-growing, 1,000-mile crude oil gathering/header system in the Midland (which provides access to firm shippers serving 20 producers) and its 116-mile Delaware Express gathering/shuttle system in the southern Delaware. Part 5 looked at the 200-mile gathering system that refiner Delek US has been developing in the Midland to deliver locally produced crude to Delek’s Big Spring, TX, refinery and others. Part 6 considered the crude gathering system that a joint venture of WPX Energy and Howard Energy Partners (HEP) has been developing in the Delaware Basin’s Stateline area, while Part 7 examined Oryx Midstream Services’ 860-mile Oryx Trans-Permian gathering and regional transport system. In Part 8, we discussed 3 Bear Energy’s Hat Mesa Oil Gathering System, which over the past couple of years has grown to become a network of 200 miles of gathering lines and small trunk lines serving nine shippers in the northern Delaware Basin. Part 9 reviewed the Permian gathering system owned by Andeavor Logistics, a master limited partnership (MLP) — currently owned by Marathon Petroleum Corp. (MPC, with a ~64% share) and investors (~36%), and to be acquired by MPLX later this month. In Part 10, we discussed EnLink Midstream’s Greater Chickadee gathering system in the Midland and its Avenger system in the Delaware. And last time, in Part 11, we turned to NuStar Energy, which entered the Permian two-plus years ago with its acquisition of Navigator Energy Services’ 520-mile crude gathering system in the Midland, and has since added some 350 miles of new pipe and tripled the volume of crude flowing through the system. [One more thing: in our Happy Together blog last month, we looked at Salt Creek Midstream’s ongoing buildout of extensive gathering assets in the Permian — not just for crude, but for natural gas, NGLs and produced water.]

Today, we zero in on EagleClaw, which, with an initial $100 million equity commitment from EnCap Flatrock Midstream (a private equity firm), was formed in 2012 to pursue midstream opportunities in the Permian. By the end of 2014, EagleClaw had acquired two small gas gathering systems and gas processing plants in Reeves County, TX (in the southern Delaware Basin). Within a year and a half of that, the gathering systems had been connected, their pipeline mileage had more than doubled (to 120 miles), a new 60-MMcf/d processing plant (and 18-mile NGL pipeline out of it) was up and running, and plans for a 200-MMcf/d plant were in the works. Later in 2016, the company acquired the Permian assets of PennTex Midstream Partners: about 90 miles of gas gathering pipes, 35 miles of condensate pipes, and a 60-MMcf/d gas processing plant — almost all of the assets again located in Reeves County. In mid-2017, EnCap Flatrock sold EagleClaw Midstream to Blackstone for a cool $2 billion. The deals and expansions didn’t end there. On the acquisitions side, EagleClaw in November 2018 closed on the simultaneous purchases of Caprock Midstream and Pinnacle Midstream (more on these in a moment). On the development front, EagleClaw in September 2018 made the final investment decision (FID) to co-develop the Permian Highway Pipeline (PHP, a big gas takeaway project) with Kinder Morgan, and in April 2019, EagleClaw committed to building the Delaware Link gas pipeline (capacity, at least 1.2 Bcf/d) from the company’s three gas processing complexes in Reeves County to the Waha Hub.

So, in only seven years, EagleClaw went from Permian midstream start-up with big dreams to a leading regional player, particularly regarding gas gathering and processing — and, with PHP, long-haul gas transportation. As we hinted at just above, the midstreamer entered the crude gathering business in earnest last fall with the Caprock Midstream and Pinnacle Midstream deals. EagleClaw announced in September 2018 that it would be acquiring Caprock from Energy Spectrum Capital and Caprock’s management team for just under $1 billion. By early November, I Squared Capital had joined the fray, agreeing to contribute the assets of its Pinnacle Midstream — and commit $500 million — to become a partner in BCP Raptor Holdco, EagleClaw’s corporate parent.

Figure 1. EagleClaw’s Crude and Gas Gathering Systems. Sources: EagleClaw and RBN

The acquisition of Caprock and the absorption of Pinnacle’s assets gave EagleClaw more gas gathering lines and more gas processing capacity — all of it in the southern Delaware — as well as 150 miles of crude gathering pipelines, 90 Mbbl of crude storage capacity, and connections to two key pipelines from the southern Delaware to crude hubs (and a plethora of existing and planned takeaway pipes) in Crane and Midland, TX. The crude-related assets that Caprock brought to the table include ~80 miles of 4- to 12-inch-diameter gathering and trunk lines in Reeves County (navy-blue lines within dashed yellow area) and 60 Mbbl of crude storage at the Stampede Terminal (green dot). Major producers whose crude production is gathered by the system include Diamondback Energy and Cimarex Energy. The system ties into Plains All American’s Piñon/Basin pipeline system (pink line) at Plains’ 285 Central Station (red square); the Piñon/Basin system runs through the Midland hub on its way to the Cushing hub in Oklahoma.

 

As for Pinnacle’s crude-related contributions to EagleClaw, they include ~70 miles of gathering and trunk lines in Reeves and Culberson (TX) counties (navy-blue lines within dashed green oval) and 30 Mbbl of crude storage at the Sierra Grande Terminal (blue dot); the terminal also has a 5-Mb/d crude oil stabilization unit and truck receipt capabilities. The gathering system, which collects crude for Capitan Energy and others, is linked to Oryx Midstream’s Oryx Trans-Permian (OTP) regional transport pipeline (green line) from the Delaware Basin to the Crane and Midland hubs. This system also ties into Plains’ Piñon/Basin system at the 285 Central Station (again, red square). [The light-blue lines on the map show EagleClaw’s large gas gathering system in the Delaware.] Most of the crude gathered on the two systems would be classified as either West Texas Light (WTL; API gravity of 44 to 50 degrees) or West Texas Condensate (WTC; API gravity of 50 to 55 degrees). EagleClaw’s two crude gathering systems have a combined capacity of about 100 Mb/d and a total of about 75,000 dedicated acres. Our understanding is that the gathering systems have been running below design capacity, but producers’ drilling-and-completion plans suggest volumes flowing through the systems will be increasing later this year and in 2020. We also hear that further gathering laterals are being added to both systems, and that EagleClaw’s plan (over time) is to connect the two systems and add even more gathering lines between them.

Yes, there are still more gathering systems to come. We’ll discuss another in the next episode in this series.

“Have It All” was written by Jason Mraz and members of his live backup band Raining Jane: David Hodges, Jacob Kasher Hindlin, Mona Tavakoli, Chaska Lela Potter, Mai Sunshine Bloomfield and Rebecca Emily Gebhardt. It was the lead single from his sixth studio album Know, and went to #10 on the Billboard Adult Top 40 chart. Mraz says the song’s inspiration came from a spiritual encounter the singer had while traveling in Southeast Asia. Know was produced by Mraz and Andrew Wells, and released in August 2018. It went to #9 on the Billboard Top 200 Albums chart.

Jason Mraz is an American singer-songwriter. His use of nylon-stringed guitars and Brazilian rhythms help to make his song stylings unique. He has released six studio albums, five live albums and 17 singles, and has sold more than 7 million albums and 11 million downloaded singles. Mraz has won two Grammy Awards and two ASCAP Awards. He still records and tours to this day.