Tallgrass Energy Partners LP and Silver Creek Midstream LLC announced Feb. 7 plans to build the Iron Horse Pipeline. The companies have signed definitive documents to develop the joint venture pipeline to transport crude oil from the growing Powder River Basin (PRB) to Guernsey, Wyoming.
Iron Horse will connect Silver Creek’s developing gathering system to the Tallgrass Guernsey Terminal, which is currently under construction, and then to Tallgrass’s Pony Express crude pipeline system, and other pipelines at Guernsey. Iron Horse and Pony Express intend to create a joint tariff to offer producers and marketers a single rate and direct access to the multiple refineries on Pony Express and to the Cushing, Oklahoma, crude oil hub, from the PRB production zone.
In addition to forming the joint venture, Tallgrass has agreed and signed definitive documents to sell its 50-mile PRB crude oil gathering system to Silver Creek (formerly owned by Outrigger Energy). Tallgrass and Silver Creek expect to close the formation of the joint venture and the sale of Tallgrass Crude Gathering, LLC later this month.
The transaction gives Silver Creek an immediate presence in the PRB and provides a strategic footprint as it constructs additional gathering to cover the core of the PRB. The acquired gathering system alongside the newly constructed Silver Creek gathering system will deliver into the Silver Creek Midway Terminal, which will deliver barrels to Iron Horse. As a result of the acquisition and announced projects, Silver Creek will be positioned as the preeminent crude oil gathering company in the PRB.
As part of the joint venture, Tallgrass has agreed to contribute approximately 40 miles of pipe from Labonte, Wyoming, to Guernsey. This pipe is currently owned by Tallgrass Interstate Gas Transmission LLC and is undergoing abandonment from gas service. Tallgrass will be a 75 percent owner and will operate the approximately 80-mile, 16-in. pipeline, which consists of 40 miles of new build and the 40 miles of gas-to-oil conversion pipe. Silver Creek will own the remaining 25 percent. Iron Horse is anticipated to be in service the first quarter of 2019 with an expected initial capacity of about 100,000 barrels per day (bpd) with significant available expansion capacity. After conversations with both producers and marketers in the PRB, the parties anticipate a significant amount of the Iron Horse’s initial capacity will be contracted prior to the pipeline being placed into service, and depending on commitments obtained, capacity could be expanded above the 100,000 bpd currently planned.
“Silver Creek is extremely excited to work with Tallgrass in the PRB,” said J. Patrick Barley, founder and CEO of Silver Creek. “Their current presence in the basin and long-haul crude transport capabilities bring a competitive advantage to Silver Creek as we work to fully build out our gathering system. Collectively, we will be able to provide optimal midstream service solutions for producers in the Powder River Basin.”
The combined systems of Silver Creek and Tallgrass intend to leverage each company’s asset footprint, providing producers in the PRB gathering and transportation services from wellhead to final sale point.
“Silver Creek brings a best-in-class oil gathering management team to the PRB,” said Matt Sheehy, Tallgrass’s chief commercial officer. “Their extensive customer relationships and focus on customer service make them an ideal partner for Tallgrass. Iron Horse Pipeline will quickly become an important path to bring Wyoming production into Guernsey and onto Pony Express.”
Tallgrass anticipates that it will invest approximately $150 million into this initiative, including its proportionate share of the cost to construct the Iron Horse Pipeline and the new Tallgrass Guernsey Terminal, but excluding the proceeds from the sale of its PRB gathering system.
Tags: crude oil, Iron Horse Pipeline, Powder River Basin, Silver Creek Midstream, Tallgrass Energy, Wyoming