Crestwood Midstream to expand Permian Delaware basin gathering, processing

Crestwood Midstream Partners LP, Houston, will expand its Willow Lake project in the Permian Delaware basin, the company reported. Phase 2 includes converting a portion of its Las Animas gas-gathering system into rich-gas service and building cryogenic gas processing.

Phase 1 of the Willow Lake project, in Eddy County, NM, began last year by converting an existing Crestwood gathering pipeline and installing NGL field separation. The initial project was to support drilling by Legend Natural Gas III LP, a subsidiary of Legend Production Holdings LLC, targeting the second Bone Spring formation along with other producers in the region.

Based on Legend’s 2013 drilling program, Crestwood and Legend have signed a 10-year, fixed-fee gas gathering and processing agreement covering more than 107,000 acres in the Willow Lake area. In addition, Crestwood has purchased Legend’s existing gas gathering system, which is being integrated into Crestwood’s system.

Anchored by the Legend contract, Phase 2 of Crestwood’s Willow Lake project will include construction of a 20-MMcfd cryogenic gas plant and additional gathering across the dedication area to handle production from Legend’s 2014-15 drilling program, Crestwood reported.

Upon completion of the Willow Lake plant and “based on area drilling activity and discussions with current operators,” Crestwood will further expand (Phase 3) the Willow Lake gathering system and move and install the Delaware Ranch plant with an expected capacity of 120 MMcfd.

This second plant is owned by Crestwood as a result of its 2012 acquisition of Devon Energy’s West Johnson County, Tex., gathering system and processing plant in the Barnett shale.

Crestwood estimates Phase 2 of Willow Lake will cost $25-30 million and be completed in this year’s third quarter. Phase 3 will begin, said Crestwood, when “additional producers drill sufficient wells to warrant the additional processing capacity.”

In addition, Crestwood will be purchasing NGLs produced at the plants, which may include initial trucking, pipeline, and marketing services.

Crestwood said the Permian Delaware basin is an emerging oil and NGL-rich region currently producing about 200,000 boe/d. The company cited studies that have pegged production to producer economic returns of about 50% from the Bone Spring and 40% from the Wolfcamp formation.

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