Crosstex Energy has been one of the fastest-growing companies in the midstream of late as the company has sought to diversify its asset base with a central focus on increasing its operations in more, liquids-rich basins, such as the Utica and Eagle Ford.

The success of this strategy was shown in Hart Energy’s annual rankings of top natural gas processors and natural liquids (NGL) producers, which saw the company enter the top NGL producers list for the first time while retaining its spot in the top gas processors list.

Crosstex’s first foray into the Marcellus and Utica shales was borne out through its July 2012 acquisition of Clearfield Energy, which provided crude oil, condensate and water services in Ohio, Kentucky and West Virginia.

“The Clearfield acquisition was a big step in the execution of our growth strategy to grow and diversify our business, providing us with a new geographic footprint in the Northeast and expanded service offerings to our customers,” Paul Weissgarber, senior vice president of the company’s Ohio River Valley segment, tells Midstream Business. “As an MLP [master limited partnership], we’re consistently looking to grow the company, and this enabled us to grow both the overall size and scale of the business while diversifying ourselves into having a much bigger position in the crude oil business.”

The company gained a foothold in the Eagle Ford through an investment in Howard Energy Partners that provided it with a 35% interest in the company. This deal acted as a reunion as Mike Howard, co-founder, chairman and chief executive of Howard Energy, worked as vice president of engineering and operations for Crosstex in the past.

“Mike and his team are experienced leaders with a strong track record of successful midstream project execution. The well-positioned assets and skilled services of his team put Howard in an excellent position for growth,” Barry Davis, Crosstex president and chief executive, tells Midstream Business. “The midstream infrastructure demands in the Eagle Ford are significant, and we look forward to continuing to support Howard’s activity in the region.”

Both of these moves occurred through existing relationships that Crosstex had with the principals at Clearfield and Howard Energy.

While these new holdings are more liquids-rich than the shale plays that Crosstex has operated in the past, Weissgarber states that the company has been able to successfully adapt to these new plays through previous lessons learned in other plays.

“The Marcellus, Utica and the Eagle Ford look a lot like other shale plays we’ve been involved with, from the Barnett to the Haynesville, where a lot of new flush production is coming in at high pressure and high volumes,” he says.

"Though the oil and gas industry has been in Pennsylvania and Ohio for many years, the biggest obstacle in the Northeast is that much of the existing infrastructure is geared toward very shallow, low-pressure, low-volume supplies. While this may pose an issue to producers and enduse customers, it presents a large opportunity for the midstream as new construction and retrofitting of infrastructure is needed.

“We have a 200-plus mile pipeline system in the Ohio River valley, and we found that the line itself is capable of moving a lot more volumes [than its current capacity],” Weissgarber says. “We had to augment it with additional storage capabilities as well as market outlets, principally our rail facility. We had a working rail site in the area, but we recognized that it didn’t have the mechanical integrity needed to handle these higher volumes. So we leveraged the site and the rail facilities and installed a new state-ofthe- art, 20-car top load safe rack loading system.”

Another advantage that the acquisition model had over greenfield development in the Marcellus and Utica for Crosstex has been the amount of unused rights-of-way in the region. According to Weissgarber, the company now has more than 2,500 miles of these holdings in which it can build new pipeline.

While much of the focus on midstream growth in the Northeast has been on the transportation side, he doesn’t anticipate the Northeast becoming a full-blown hub similar in scale to the Gulf Coast.

“Our view is there will be some continued growth in fractionation in the region, but with so much petrochemical infrastructure already in place along the Gulf Coast we believe transporting volumes via pipeline would be more efficient than creating a second petrochemical hub in the Northeast,” Weissgarber says.

“Projects like Williams’ and Boardwalk Pipeline Partners’ Bluegrass Pipeline, and MarkWest’s and Kinder Morgan’s proposed pipeline, to move NGLs from the Northeast down to the Gulf Coast to be processed—and then moved to the Gulf Coast petrochemical markets—make more sense than trying to build out a petrochemical value chain in the Northeast,” he adds.

Another aspect hurting the development of a large Northeast hub is the lack of salt dome storage sites, which Weissgarber calls the region’s Achilles heel to growing a large-scale hub. Trading can’t be as efficient as at the Mont Belvieu, Texas, and Cushing, Oklahoma, hubs.

The Devon deal

Through the successful execution of its growth strategy— and through its strong business relationships—Crosstex announced a transformational transaction with Devon Energy in late October. The companies will combine Devon’s U.S. midstream assets with Crosstex. The new company, which will be named before the closing of the transaction in first-quarter 2014, will have enhanced scale and diversification, with approximately $700 million of combined EBITDA—more than double the size of Crosstex today.

“Crosstex and Devon know each other well from our longstanding commercial relationship, and we have a shared vision for what the new company will become. Our goal together is to be not only one of the most valuable midstream businesses, but to be one of the best,” says Davis.

The new company will be led by Crosstex’s management team with the addition of one Devon executive, with Davis serving as president and chief executive.

The combined company will have an expanded foothold in the Barnett shale, Permian basin, Cana and Arkoma Woodford, Eagle Ford, Haynesville, Gulf Coast, Utica and Marcellus, with a focus on liquids-based growth projects.

“The combination of our expansive gathering, processing, fractionation, transportation and logistics assets will more than double the size of Crosstex today,” Davis adds. “Devon’s midstream assets will be combined with Crosstex’s to create a geographically diverse portfolio of midstream assets that provide an increasing focus on growth in the liquids business.”

The new company will own more than 6,400 miles of gas gathering and transmission lines and 13 gas processing plants with a combined capacity of 3.3 billion cubic feet per day.

“We will grow our NGL transportation, fractionation and storage capabilities with facilities spanning from Mont Belvieu to the Louisiana River Market. Our fractionation facilities will have 237,000 barrels per day of total capacity after our Cajun-Sibon expansion is complete later this year,” he says.

“Size, scale and diversification matter in our industry. This combination enables us to become a stronger, more competitive company,” says Davis.

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