As natural gas production ramps up in the tight sands Granite Wash play, pipeliners and midstream operators are keeping their eyes open for opportunities to build new take-away capacity and processing facilities.

The Granite Wash formation, located in the Texas Panhandle and western Oklahoma, is the next emerging natural gas and associated liquids play in the United States. As production from the play grows, midstream investment opportunities are expected to grow as well. Gas gathering, including low-and mid-pressure gathering, and treatment and processing (because of the high liquids content) services are expected to experience rapid growth.

There will also be the need to connect the local systems and plants to high-pressure, long-distance transmission systems. Chesapeake Midstream, Frontier Energy, Markwest Energy Partners and Eagle Rock Energy Partners are already active in the Granite Wash midstream services market. Long-distance, high-volume, product takeaway capacity is currently provided by ONEOK Systems, Enogex and Enterprise Product Partners.

The play has given rise to a number of midstream market opportunities in recent years. For example, a recent agreement between producer Chesapeake Energy Corp. and midstream operator Enogex LLC called for natural gas gathering, processing and transportation services for Chesapeake in the Colony Granite Wash play in Custer and Washita counties, in the Anadarko Basin of western Oklahoma. Chesapeake is one of the largest producers and most active drillers in the Granite Wash plays of the Anadarko Basin. To accommodate the expected production growth in the area, Enogex invested approximately $55 million to build a combination of additional gathering and transportation pipeline infrastructure; a new gas processing plant near Clinton, Oklahoma; and two new compressor stations. The plant, which was placed in service last October, can process up to 120 million cubic feet of natural gas equivalent (mmcfe) per day. Enogex says it is prepared for further growth to accommodate increasing Chesapeake production in the region.

Pipeliners and midstream operators are building new take-away capacity for the growing production in the Granite Wash play.

Markwest Energy Partners is another key midstream operator in the region. The company owns the Foss Lake natural gas gathering system and the Arapaho I and II natural gas processing plants, all located in Roger Mills, Custer and Ellis counties of Western Oklahoma. The gathering portion consists of a pipeline system that is connected to natural gas wells and associated compression facilities. All of the gathered gas ultimately is compressed and delivered to the processing plant. MarkWest recently installed a 60-mile pipeline to serve the Granite Wash area of the Texas Panhandle. The new line connects assets acquired from Newfield Exploration to the company’s Arapaho processing plants. The Granite Wash gathering assets have a capacity of 120 MMcfd and are currently gathering approximately 100 MMcfd. The company says it plans to add new gathering and compression infrastructure in the area.

Last month, MarkWest Energy Partners’ chairman, CEO and president, Frank Semple said that the Granite Wash was the area “with the most compelling producer economics in the U.S.” From the period of late 2008 to early 2009, MarkWest invested more than $100 million to upgrade its operations in the region to support the growth in the play. As of third quarter of 2009, MarkWest was gathering almost 100 MMcfd out of the Granite Wash.

Enbridge Energy Partners is another key midstream operator in the region. The company’s Anadarko System, located within the Anadarko Basin in the Texas Panhandle and western Oklahoma, is one of the key transportation facilities for the Granite Wash play. The system comprises approximately 1,800 miles of pipe and six active processing plants. Enbridge reports that it has increased the processing capacity on the Anadarko System to approximately 445 MMcfd, and that it continues to add field compression to accommodate volume growth on this system.

Eagle Rock Energy Partners also has significant takeaway and processing capacity in the region. It operates four gas processing facilities with a combined inlet capacity of more than 100 MMcfd, including the Arrington and Red Deer plants. The company also has about 900 miles of gathering lines in the play.

Operating company officials are quick to point out that upstream activities are still in the beginning phases in the Granite Wash, and it is too early to tell how large the play could become. “I think it’s just being tapped as far as potential,” said Dave Presley, president and CEO of Frontier Energy Services. Bob Purgason, Chesapeake Midstream Partners’ Chief Operating Officer, affirms that point. “My sense is that we’re early in the play,” says Purgason. “The producers are still learning as they’re drilling and completing these wells. There’s still a lot of innovation going on and the results do appear to be getting better, but there’s still a lot of unknowns out there. We’re hopeful that as they learn more and delineate the field that this is just the beginning of the play, but we’ll have to watch this next year and see how it develops.”

Chesapeake Midstream’s gathering and transportation services are connected to both the Enogex and ONEOK systems. “We are working with whoever has the best flexibility in terms of markets and the best processing arrangements,” says Purgason. “We’re focused on getting producers’ gas to flow to the best combined market to get the highest netback.” While Chesapeake Midstream’s primary focus for its offerings in the play have been on gathering and transportation services, Frontier Energy moved into the play through the January acquisition of the Indian Creek gas processing plant, and Presley said the play is the company’s initial processing focal point.

Producers are primarily worried about connecting their wells to pipelines, but they are also looking for processing capacity in the play to expand from the capacity represented by the play. Frontier’s 36 MMcfd, state-of-the-art cryogenic plant is located in Roberts County, Texas, and is one of the newer plants in the region. Frontier Energy is already in the midst of developing several expansion projects in the play, including gathering, treating, processing, buying and reselling natural gas and NGLs, with a focus on gathering and processing. “We’re a fairly small player in the Granite Wash, but we’re in an area that hasn’t really been exploited and we’re starting to see a lot of activity. So we want to make sure we have infrastructure in place,” said Presley. That is the question producers in the region are facing, and the heart of the opportunity that midstream operators and pipeline companies are looking to capitalize on.

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