C?overing some 5,000 square miles in 27 counties in north-central Texas, Newark East (Barnett shale) Field, oftentimes called “the mother of all shales,” has ushered in a new era for natural gas resource availability in North America. The developed core area is in four counties near Fort Worth, Texas. The developing non-core area encompasses numerous contiguous counties. More than 15,000 well permits have been issued for the area, and more than 240 operators have a presence in the play. The majority of the shale-gas wells are horizontal and were completed using high-pressure, water-driven fractionation techniques.

Gas production from the Barnett area reached peak production in 2009, exceeding 1.7 trillion cubic feet, and more than 9 trillion cubic feet has been produced since 1993. The top five gas operators, from January through September 2010, were Devon Energy Corp., Chesapeake Energy Corp., XTO Energy Inc., EOG Resources Inc. and Quicksilver Resources Inc., according to the Railroad Commission of Texas.

This year, after achieving the majority of their held-by-production lease requirements and optimizing well-development activities, many operators slowed their overall activity in the Barnett and are focused on ongoing production operations and efficiency improvements.

Supporting this significant upstream development effort is an extensive array of regional midstream assets, including gas-gathering, treating, processing and liquids-handling facilities. Other infrastructure includes intrastate gas and natural gas liquids (NGLs) pipelines.

In the past, most of these assets were in rural areas, but since then have migrated deeply into major metropolitan communities of the greater Dallas-Fort Worth area as operators follow the geological play and seek its potential.

Crestwood Midstream’s Cowtown gas-processing plant, constructed in 2005, has a design capacity of 200 million cubic feet of gas per day.

Unique challenges

Pad drilling and horizontal-well implementations have been used extensively in the Barnett shale. These concepts not only have reduced the surface and environmental footprint of drilling and production activity, but also have provided access to areas previously unattainable, such as beneath parks and other public locations, under bodies of water, within neighborhoods or other residential developments, and even on property associated with the Dallas-Fort Worth regional airport.

Infrastructure development to these centralized pads was and remains quite challenging. Numerous permits are required from local authorities, and operators must negotiate with local governments, neighborhoods and community associations. Other challenges include managing pipeline rights-of-way in local and private road corridors, noise issues associated with compressors, and traffic and access issues during development.

Operators’ main priority continues to be ensuring public confidence in their ability to build and operate facilities efficiently and safely.

Meanwhile, all aspects of regulation have entered the picture, with producers’ exiting-the-wellhead gathering systems regulated at the local levels. Larger gathering and intrastate pipelines are regulated at the state level. Interstate facilities are regulated at the federal level. Such regulatory diversity requires differing negotiations, requirements, timelines and approval processes.

Early commitments

Initially, producers had only limited regional exit capacity available on Kinder Morgan Energy Partners LP’s NGPL interstate pipeline. Texas intrastate pipelines found themselves in the pivotal role of providing the primary interface to support early development of the Barnett shale as well as providing connection to some of the earlier small gathering systems being developed.

With those first connections, volumes received into this existing intrastate pipeline infrastructure flowed primarily to markets in Texas. Legacy intrastate pipelines in North Texas included Energy Transfer’s ET Fuels system, Enterprise Texas Pipeline, and Atmos Texas Pipeline.

In the early stages of play development, these pipeline operators connected their existing pipeline systems to the new areas of supply and most followed through in later years with extensive additions or upgrades to their facilities to continue to provide both gathering and transmission capability.

The number of wells drilled in the Barnett shale-gas play more than doubled in 10 years.

These early commitments provided for volumes to be routed through existing intrastate facilities westward to the Waha Hub, southward to the Katy Hub, or eastward to the Carthage Hub. The commitments gave operators time to focus on drilling, defining the core and non-core areas of the play, and to determine their strategies and timing for future activity.

Long-term infrastructure additions soon followed. Intrastate pipelines such as Crosstex North Texas, Energy Transfer, Enbridge U.S., and Targa Intrastate joined in to provide additional intrastate take-away capability for their own gathering systems as well as those owned by others. As it became apparent to upstream operators that robust, long-term supply resources from the Barnett shale could be economically developed, operators looked for and began to make commitments to long-term midstream infrastructure and related pipeline-transportation capacity.

First, intrastate pipelines added facilities to provide for volumes to move eastward within Texas. New regional pipelines built west to east formed a “basis bridge,” eliminating bottlenecks. Then, to move these volumes further eastward, commitments to new interstate pipeline assets followed, first on Centerpoint Energy’s Line C-P from the Carthage Hub to a market hub near Perryville, Louisiana, and next on Gulf South’s East Texas-Mississippi pipeline expansion.

Trunkline Gas entered the foray by expanding its system from southeast Texas to Henry Hub, this being a price/basis arbitrage opportunity as well as providing an early increment of needed eastbound capacity. Other new major pipelines followed. Next, Kinder Morgan/Regency Midcontinent Express and Boardwalk/Enterprise Gulf Crossing projects accumulated some Woodford shale volumes from Oklahoma prior to routing into Texas to connect to the various Texas intrastate pipeline expansions for Barnett shale volumes. These capacity commitments by operators evolved into new interstate-pipeline assets that would provide transportation capacity eastward as far as Mississippi and Alabama, where Barnett operators could access and compete for market share.

These major interstate pipeline additions—representing more than 7.6 billion cubic feet per day of new, supplier-push transportation capacity—provided a significant west-to-east bridging of future gas connectivity to market. The infrastructure helped to eliminate what historically had been eastbound transportation bottlenecks resulting in an unfavorable wellhead price differential for parties developing natural gas supplies in producing states west of Louisiana. Thus, significant transportation capacity access has allowed operators to develop their resources with better gas-price certainty and higher realized upstream returns.

Gas gathering

Today, midstream infrastructure in the region consists of a variety of integrated resources that have developed over time to gather, treat and process gas and route it to connections with intrastate pipelines for consumption in Texas markets, or provide exit capacity to transport the gas eastward to compete for markets in other states.

Some parts of the Barnett produce rich gas that is processed to remove NGL products. Gas-processing plants are scattered throughout the core area’s counties, including Crestwood Midstream Partners LP’s Cowtown plant, Devon Gas Services LP’s West Johnson County plant, Enbridge Inc.’s Springtown plant, Energy Transfer Partners LP’s Godley plant, Targa Resources Inc.’s Chico plant, and Upham Oil & Gas Co. LP’s Chico plant. Devon’s Bridgeport plant in Wise County is the region’s largest, with the ability to process up to 650 million cubic feet per day of gas and liquids recovery of up to 50,000 barrels per day.

While providing additional NGL take-away capacity to its Oklahoma area processing activities, Oneok Inc. routed its new Arbuckle Pipeline through the Barnett shale on the way to the NGL hub at Mont Belvieu, Texas. This 12- and 16-inch pipeline has capacity to transport 160,000 barrels per day of NGL raw mix, which can then be stored and further processed to marketable NGL products.

Meanwhile, Louis Dreyfus Highbridge Energy LLC (LDH) extended its existing West Texas NGL pipeline into the southern portion of the Barnett area to pick up NGLs from several processing plants. Daily capacity of this extension is 45,000 barrels per day. To ensure the NGLs have market access, LDH also extended its existing NGL pipeline system, connecting it directly to Mont Belvieu and providing up to 120,000 barrels per day of additional capability. These additional NGL infrastructure developments complement the many other dry-gas gathering and transmission systems currently in service throughout the Barnett region.

In Texas, intrastate production and gathering lines “leaving lease” total 143,920 miles, according to the Railroad Commission of Texas. Thousands of miles of these facilities have been added in North Texas to connect some 15,000 area wells. In Texas, gathering systems may be on-lease systems, private systems that leave the lease, or configured as public utilities.

The latter have the right to transport gas for third parties and provide operators the right of eminent domain to acquire or access land for pipeline rights-of-way. This land-acquisition option is available to these utility-system operators but is generally only used when negotiations falter or re-routing is not feasible. As utilities, these gathering systems must report annual volumes and revenues to the Railroad Commission of Texas, providing transparency of their annual operations and revenues.

Table 3 (see back of map) shows examples of volumes and well counts for numerous midstream operators on various utilities systems in 2009. All systems are held to the same environmental and safety standards. The table lists some of the existing regional gas-gathering operators and the counties in which their facilities are located. As can be seen in the table, upstream operators have built extensive facilities throughout North Texas to connect wells.

Monetizing midstream

Recently, some producers or early gathering-system developers have monetized their midstream gathering facilities. Examples include Chief Holdings LLC, which sold some of its gathering assets to Crosstex Energy LP. Cantera Resources Inc. sold some assets to Enbridge Energy. Lone Star Gathering LP sold assets to PVR North Texas Gathering LP. Chesapeake Energy, along with investment from Global Infrastructure Partners, placed its Barnett and certain other midstream assets into the newly formed joint venture, Chesapeake Midstream Partners LP.

Elsewhere, Quicksilver Gas Resources sold its assets to Crestwood. Crestwood operates some 320 miles of gas pipeline systems with more than 825 million cubic feet per day of aggregate capacity. Its gathering systems are in the Fort Worth Basin, including its Alliance and Lake Arlington systems in Tarrant and Denton counties, and its Cowtown system located principally in Hood and Somervell counties. The company’s additional midstream assets in the Barnett include its Alliance amine gas-treating facility, which can treat up to 300 million cubic feet per day from wells connected to its Alliance gathering system, and two cryogenic processing plants—the Cowtown (200 million cubic feet per day) and Corvette (125 million cubic feet per day).

“The downstream NGL pipelines may have some excess capacity, but in general it is being backfilled with NGLs from Oklahoma heading toward Mont Belvieu or from West Texas.”

“The Barnett shale has been active for many years and is the most mature shale basin,” says Terry Morrison, senior vice president of business development for Crestwood. “A large majority of the Barnett shale has already been held by production. However, there are still areas in the play under development. As a result, more midstream infrastructure is in place in the Barnett than in other, newer shale plays.”

Infrastructure development continues in the region even though upstream activity is currently slowed by low natural gas prices and a general industry-wide shift to oilier development plays. The overall Barnett region midstream infrastructure remains ripe for consolidation of assets and/or further monetization.

“The Barnett is the most mature shale play, producing over 5 billion cubic feet of gas per day,” says Morrison. “Once the producers achieve their held-by-production target, they have the opportunity to move their operations into other areas and focus on infield drilling within the basin.” Morrison points to the last 12 months of drilling activity in the Barnett shale, which has held fairly steady, saying the play has transitioned from a growing shale play to a “maintenance and manufacturing mode.”

Due to the play’s maturity and infield drilling operations, Morrison sees efficiency and consolidation as the best opportunities for midstream operators. “We have some of the most efficient processing plants within the Barnett shale. We are always looking to expand our systems and provide producers access to our facilities, as well as consider any type of consolidation opportunities,” he says.

Development in the midstream sector has taken many forms since the Barnett shale was first developed. In the beginning, producers were building their own midstream infrastructure, but now much of that has been transitioned over to midstream providers.

“From our perspective, the NGLs infrastructure has been enhanced over the last few years, and seems to be adequate to meet the future needs of the Barnett shale. The downstream NGL pipelines may have some excess capacity, but in general it is being backfilled with NGLs from Oklahoma heading toward Mont Belvieu or from West Texas,” Morrison says.

Most of Crestwood’s growth strategy targets the northern end of the play, near the Lake Arlington area, and also around Alliance, where Crestwood is still building out facilities. “Our expanded assets will help support the ability for additional volumes to be gathered as infield drilling in those areas continues,” he explains.

Crestwood Midstream’s Alliance amine gas-treating facility can treat up to 300 million cubic feet per day from wells connected to its Alliance gathering system.

Gas storage

Regional gas-storage facilities support both supply and market activity in the North Texas area. As a considerable portion of Barnett supply volumes are routed on regional intrastate pipelines in Texas prior to being sent further east, gas-storage facilities are extensively integrated into these various pipeline networks and can provide support when needed.

NorTex Gas Storage Co. LLC, now owned by Alinda Capital Partners LLC, operates two facilities in the area, the Hill Lake facility and the Worsham-Steed facility. Combined working gas capacity of the facilities is 35 billion cubic feet. These facilities provide an assortment of commercial services, including support for gas-fired power plants in the region.

The Worsham-Steed storage facility is somewhat unique, with a 63-mile gas header pipeline that also functions as a gas-gathering and transportation facility for nearby supply developments in addition to its use for gas-storage operations.

Other gas-storage facilities in the region are primarily owned and operated by the area intrastate pipelines and are integrated into their service offerings. These facilities provide support for power plant operations and are also used to support winter-season load requirements for regional gas utilities. Atmos Pipeline and Storage operates gas storage in the area with a working capacity of 39 billion cubic feet, the majority of which is contracted by local gas utilities to support winter-season requirements. Atmos offers gas-storage services to others if capacity is available. Energy Transfer Partners’ Bethel and Bryson storage facilities, with working gas capacity of 12.4 billion cubic feet, are integrated into its overall ET Fuels pipeline operations and likewise provide essential support to its Barnett area operations.

Overall, the “mother of all shales” has provided the perfect home for extensive midstream natural gas infrastructure.

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