Crestwood Niobrara LLC has secured operatorship of Jackalope Gas Gathering Services LLC—aligning field operations, project management, and commercial efforts—with a $485-million deal to acquire Williams Cos. Inc.’s 50% interest in the Powder River basin joint venture.
Prior to the transaction, Crestwood was Williams’ 50% joint venture partner in Jackalope where Williams acted as operator, responsible for managing construction and operations and Crestwood served as marketer, responsible for commercial services.
The deal doubles Crestwood’s position in the Powder River basin and creates one of the largest gas processing companies in the area with opportunity to expand commercial services to undedicated third-party operators, the company said.
The Jackalope assets in Converse County, Wyo., provide gathering, compression, and processing services under a long-term, fee-based agreement with Chesapeake Energy Corp. and include the Jackalope gathering system and the Bucking Horse processing plant. The system is supported by a 358,000-acre area dedication by Chesapeake and a 30,000-acre area dedication by Panther Energy.
Bucking Horse and Jackalope are undergoing expansion projects to increase gathering and processing capacity to 345 MMcfd (OGJ Online, July 27, 2018). The projects, including line looping and system compression, are expected to be substantially complete in first-quarter 2020.
Currently, the Jackalope system is averaging gathering volumes of 140 MMcfd, up 12% from 125.5 MMcfd in fourth-quarter 2018. Continued volume growth is expected as Chesapeake plans to operate 5-6 rigs targeting the Turner formation. In fourth-quarter 2018, Chesapeake drilled its highest producing Turner formation well to date achieving a 24-hr initial production rate of 3,100 boe/d (OGJ Online, Nov. 30, 2018). The company plans to further delineate and test other production benches, including the Niobrara and Parkman, this year. Based on current rig activity and growing initial production volumes, Chesapeake expects to double system volumes in 2019.
Employees currently operating the assets are expected to be retained by Crestwood, which expects to reduce expenses by $6-8 million/year by assuming the role of operator.
Crestwood expects the Jackalope assets to contribute cash flow of $100 million in 2019, increasing to $150 million by 2021.
The transaction, which was not subject to regulatory approval, closed Apr. 9.
