Crestwood Equity Announces Expansion Projects, Joint Venture

By Brad Kramer October 29, 2015 View Profile

Crestwood Equity Partners LP has launched a non-binding open season for a crude and condensate pipeline in Reeves County, Texas. The company is also negotiating a joint venture with equity firm First Reserve to support development in the Delaware Permian Basin, according to an Oct. 28 statement.

As part of the open season, Crestwood is seeking shipper support for the Delaware Takeaway crude pipeline system, known as “Delta,” an approximately 164-mile pipeline header system originating at a new Crestwood terminal to be built near Orla, Texas, with potential downstream connections to provide shippers access to attractive end markets including El Paso, Midland, Cushing, Houston and Corpus Christi. As designed, Delta will have the capability to batch multiple grades of crude and condensate, and initially transport more than 200,000 barrels per day (bpd). The project may be further expanded based on the results of the open season. Delta is expected to be operational in the second quarter of 2017.

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Crestwood is in exclusive negotiations with a large producer in the Delaware Permian Basin to anchor a large scale three-stream gathering system spanning portions of Reeves, Loving and Culberson counties, Texas, which will aggregate crude and condensate volumes to Crestwood’s Orla Terminal. As currently designed, the three-stream gathering system would consist of approximately 600 miles of pipelines and will span an area in excess of 400,000 acres. The Orla Terminal is planned to initially provide approximately 200,000 barrels of storage, truck loading and unloading facilities, blending services, multiple upstream and downstream pipeline connections, and will potentially provide condensate stabilization services for Wolfcamp production.

“The Delta pipeline is designed to provide optimal netbacks for our gathering system producers, as well as other producers and marketers active in the surrounding areas,” said Heath Deneke, Crestwood’s chief operating officer and president of the company’s Pipeline Services Division. “Delta was designed specifically for producers seeking long term optionality to access multiple downstream pipelines and markets and also has the operational capability to batch specific grades of crude oil and condensate.”

The open season period will close Dec. 7.

First Reserve Strategic Partnership

In connection with Crestwood’s Delaware Permian Basin expansion opportunities, the company is in exclusive negotiations to form a 50/50 joint venture with global private equity and infrastructure investment firm First Reserve to support growing producer demand for midstream infrastructure in the basin.

Under the terms of the joint venture, First Reserve and Crestwood will initially commit equity capital of $500 million, which will be available to the joint venture for financing identified greenfield development and acquisition opportunities in an area of mutual interest spanning Reeves, Culberson and Loving counties. In addition, the agreement stipulates First Reserve will fund 100 percent of the initial capital requirements to the joint venture during the early-stage build-out of the systems, after which Crestwood will fund 100 percent of capital requirements for a period of time to achieve the 50/50 capital structure.

“The Delaware Permian Basin is the most active shale play in the U.S., and Crestwood is well-positioned with current assets and future projects to build significant midstream infrastructure in the area and provide much needed midstream solutions for our producer customers,” said Deneke. “With First Reserve’s capital and strategic partnership, we are aggressively moving forward with expansion projects to support our producers’ development plans largely focused on the Wolfcamp formation.”

Despite lower commodity prices, Deneke said that the Wolfcamp formation remains economically viable to develop and produce.

“The development of midstream infrastructure [in the Wolfcamp region] remains vitally important to providing optimal market outlets for supply development,” he added. “Crestwood brings significant operating experience across the most productive natural gas, NGL and crude oil shale plays in the U.S. to ensure our producers receive the highest net-backs and access to markets for these new supplies.”

The closing of the joint venture is subject to final execution of definitive documentation, customary and other closing conditions, including the approvals for Crestwood’s board of directors and special committee, as well as First Reserve’s investment committee.

“First Reserve is excited to expand our relationship with Crestwood, particularly in this prolific area of the Delaware Permian Basin, which we believe remains underserved from a midstream standpoint,” said Gary Reaves, managing director of First Reserve. “As general partner of Crestwood, we remain highly committed to the growth and success of both Crestwood and this new partnership and are excited to continue to support management as they pursue these growth opportunities. First Reserve has significant experience in this area of the Delaware Permian through our ownership interest in RKI Exploration, whose Permian assets were recently sold to WPX Energy. In addition to capital support, we look forward to bringing our expertise, experience and relationships to the joint venture with Crestwood to take advantage of these midstream growth opportunities in an area where Crestwood has great assets and deep experience in building and operating these type of facilities.”