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Charles Murray
CEO, Permian Rock Inc.

The Market

A $1.7 Billion Natural Gas Pipeline To Ease The Permian Glut
By Tsvetana Paraskova
Kinder Morgan, DCP Midstream, and a unit of Targa Resources are moving forward with their plan to build a US$1.7-billion gas pipeline in the Permian that could ease some of the takeaway bottlenecks in that basin, and reduce natural gas flaring that has increased greenhouse gas emissions.
Kinder Morgan Texas Pipeline, DCP Midstream, and an affiliate of Targa Resources Corp announced on Thursday a final investment decision to proceed with the Gulf Coast Express Pipeline Project (GCX Project), designed to transport up to 1.92 billion cubic feet per day (Bcf/d) of natural gas. The GCX Project Mainline portion consists of approximately 82 miles of 36-inch pipeline and 365 miles of 42-inch pipeline originating at the Waha Hub near Coyanosa, Texas in the Permian Basin, and terminating near Agua Dulce, Texas.
Kinder Morgan and its partners decided to proceed with the gas pipeline plan after they had executed definitive joint venture agreements and secured sufficient firm transportation agreements with shippers. Around 85 percent of the project capacity is subscribed and committed under long-term, binding transportation agreements, and the partners expect that the remaining capacity will be subscribed by early 2018.
The pipeline is expected to be in service in October 2019, subject to receiving all regulatory approvals. Construction is planned to begin in Q1 2018, Kinder Morgan Natural Gas Midstream President Duane Kokinda said.
Shippers that have committed to the project include, but are not limited to, DCP Midstream, Targa, Apache Corporation, and Pioneer Natural Resources.
DCP Midstream and Targa operate natural gas processing facilities in the Permian and need more takeaway capacity. Apache and Pioneer, on the other hand, are major producers in the Permian and look for ways to monetize growing quantities of associated gas as crude oil production increases.
Rising gas quantities have led to more flaring in the Permian. Read More

Kinder Morgan moves forward on $1.7B Texas pipeline
By Jordan Blum
Houston’s Kinder Morgan said Thursday it’s ready to move forward with its $1.7 billion gas pipeline from West Texas to the Corpus Christi area after signing on Apache Corp. as a major customer.
The project, expected to be in operation by October 2019, is meant to capitalize off of the ongoing shale boom in West Texas’ Permian Basin. While companies are primarily drilling for oil, there’s also a lot of associated natural gas produced from the shale rock - even more than initially projected.
The goal is to ship the gas to industrial and port hubs near Corpus Christi and Houston, where the gas can be shipped to power plants for electricity generation, to liquefied natural gas export terminals, or to Mexico, which is increasingly importing more American gas for its power generation.
The 500-mile project is 50 percent owned by Kinder Morgan with the other 25 percent slices of the pie belonging to Houston’s Targa Resources and DCP Midstream, which is a joint venture between Houston’s Phillips 66 and Calgary-based Enbridge. Construction is expected Read More

Pipeline projects move ahead to tackle rising Texas shale output
Bryan Sims
HOUSTON (Reuters) - Several oil pipeline companies this month agreed to move ahead on multi-billion-dollar projects that would link Texas shale fields to Gulf Coast export hubs, offering new outlets for burgeoning output expected in 2018.
A pump jack stands idle in Dewitt County, Texas January 13, 2016. REUTERS/Anna Driver Crude production from two large Texas shale fields next year is expected to rise about 800,000 barrels per day, researcher East Daley Capital Advisors estimates. Most pipelines will not be finished until 2019, when analysts say existing lines from West Texas will be nearly full.
On Friday, crude prices at the Midland hub in West Texas were $60.66 a barrel, compared with $65.01 a barrel at East Houston. A wide spread encourages producers to sign long-term pipeline contracts to get higher prices.
“If you are a pipeline company, you need to do something now,” said John Zanner, an analyst at consultants RBN Energy LLC. “Pipes are filling up from Midland to the Gulf and how full they are for how long will have an impact on price.”
Pipeline firm EPIC last week said it is going ahead with a 590,000 barrel-per-day (bpd) crude pipeline tying the Permian and Eagle Ford shale basins to Corpus Christi, Texas. The line is expected to begin operation in 2019.
Buckeye Partners last week began seeking shipper commitments for a Permian-to-the Gulf-Coast line that is expected to open in 2019. It will carry up to 600,000 bpd of crude and condensate. In addition, Phillips 66 and Enbridge Inc began soliciting Read More

U.S. oil pipeline rivals look to consolidate West Texas projects
Rod Nickel, Bryan Sims
HOUSTON (Reuters) - As shale oil producers have rushed back into the Permian Basin after a downturn, U.S. pipeline firms have scrambled to plot new pipelines to take all that petroleum from West Texas to refineries, export hubs and petrochemical plants.
But operators with plans for up to 20 new lines are now selling stakes in some of those projects amid concerns that production could fall short of the volumes needed to fill them.
“I suspect some projects will disappear altogether,” said Roberto Simon, Americas head of natural resources and infrastructure for investment bank Societe Generale. “Not every one is going to be viable.”
The shakeout comes despite record crude volumes being pumped now in the Permian, the largest U.S. oilfield, after a two-year downturn that started in 2014.
Production from the Permian Basin is up 24 percent since the year began, to 2.6 million barrels per day. It has sold at a discount since August to benchmark crude oil stored at Cushing, Oklahoma, according to Reuters data, a reflection of congested pipelines.
But the competing pipeline projects, taken together, would add an enormous amount of pipeline space that even record production might not fill. If all nine new or expanded crude lines were built, it would nearly double the region’s current capacity of 2.4 million barrels per day.
Rather than compete for the same customers, the pipeline firms are seeking to cut deals to ensure they can guarantee the energy supplies to fill the lines. None have formally dropped out of the competition, but a hunt for partners signal that the winnowing process has begun.
“There is a lot of money Read More

Permian Operators Reveal Plans for Oil Infrastructure Expansions
Jamison Cocklin
Enterprise Products Partners LP said Wednesday it intends to convert one of its natural gas liquids (NGL) pipelines in the Permian Basin to move crude oil to the Texas Gulf Coast by 2020.
Enterprise already has three existing Permian NGL pipelines that serve producers in West Texas and southeastern New Mexico. The 571-mile Shin Oak NGL pipeline under construction would deliver volumes from the Hobbs fractionation and storage facility in Gaines County, TX, to its complex in Mont Belvieu. The pipeline is expected to be in service by 2Q2019, allowing the company to divert NGLs onto the new pipeline and repurpose an existing liquids pipe for oil.
Enterprise now is evaluating which of the three existing systems, the Seminole Blue, Seminole Red and Chaparral lines, to convert. CEO Jim Teague said the company has seen strong demand for crude oil transportation, storage and marine terminal services in the Permian. The conversion would boost the company’s crude oil capacity to more than 650,000 b/d.
Oil-directed drilling in the play has been red-hot, consistently leading the nation’s rig count by a wide margin and pushing up associated natural gas production. While crude oil takeaway capacity isn’t expected to be an issue in the foreseeable future, midstream operators are working to stay ahead of the curve to address each stream of production.
Wolf Midstream Partners, which was formed in June to take advantage of growth in the Permian, also announced one of its first deals in the play on Wednesday. The company said it has executed a crude oil gathering and transportation agreement with an unnamed independent producer Read More

New pipeline infrastructure should accommodate expected rise in Permian oil production
As crude oil production in the Permian Basin of western Texas and eastern New Mexico has increased, pipeline infrastructure has also increased to deliver this crude oil to demand centers on the U.S. Gulf Coast.
One indicator of a potential shortfall in available takeaway capacity in the Permian is a negative spread between the price of West Texas Intermediate (WTI) crude oil at Midland, Texas, and the price of WTI at Cushing, Oklahoma.
Going forward, the Midland versus Cushing discount, which recently widened to more than $1 per barrel (b), is unlikely to be either as large or as persistent as it was following the rapid increase in Permian production from 2010 to 2014. At points in both late 2012 and mid-2014, WTI-Midland was priced at least $15/b lower than WTI-Cushing. Pipeline capacity expansions and other market changes are now underway to deliver more Permian crude oil to demand centers.
Compared with other oil producing regions, the Permian has a large number of productive geological formations stacked in the same area. The Permian’s in-region refining capacity, close proximity to large refining centers on the Gulf Coast, and existing pipeline infrastructure also make the Permian attractive to oil producers.
Crude oil production in the Permian grew from 886,430 barrels per day (b/d) in January 2010 to nearly 1.5 million b/d in January 2014, and this production level was more than could be accommodated by in-region refining capacity and pipeline capacity. This situation resulted in large price discounts at the crude oil gathering and transportation hub in Midland, Texas, compared with Cushing, Oklahoma, indicating that pipeline capacity was becoming constrained and crude oil was likely moving out of the region by more expensive methods, such as rail or truck.
In 2014, WTI-Midland averaged a $6.94/b discount to WTI-Cushing, compared with a $1.68/b average discount during 2013. However, as new and expanded pipeline capacity was added, WTI-Midland’s discount to WTI-Cushing narrowed, falling to an average of $0.18/b in 2015 and $0.07/b in 2016.
With the rise in oil prices from their low point in early 2016, EIA’s April Short-Term Energy Outlook (STEO) expects crude oil production growth in the Permian to accelerate. EIA’s April Drilling Productivity Report (DPR) indicates a total of 310 oil-directed rigs active in the Permian, 158 more than at the same time last year. Read More

Events in the Oil & Gas Industry

Rand Corporation Board of Trustees

My first cousin, Karen Elliott House, is now Chairman of the Board of Trustees of the RAND Corporation. Two other trustees were named to the board; Richard Danzig, former U.S. Secretary of the Navy succeeded Karen as Vice Chairman. Also elected to the RAND board was Kenneth Feinberg. Mr. Feinberg served as special master for TARP executive compensation, a role where he was popularly called the 'pay czar.' Mr. Feinberg recently served as the government appointed administrator of the BP Deepwater Horizon Disaster Victim Compensation Fund. Ambassador Philip Lader, former ambassador to the Court of St. James's(1997-2001) was also appointed to the board at that time.
We West Texans are rather proud of Karen's accomplishments. She was publisher of the Wall Street Journal from 2002 to 2006. She won a Pulitzer prize in 1984 for her coverage of the Middle East. She is the author of the 2012 book 'On Saudi Arabia: Its People, Past, Religion, Fault Lines-and future.'
Ken R. Feinberg-BP-Horizon Settlement Czar, Chuck Hagel-Former U.S.Secretary of Defense and Malcolm Gladwell-noted author have recently become Rand Trustees.

Charles Murray

Permian Rock Inc.

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