In the oil and gas midstream sector, growth is a given. And when the midstream industry's owners and operators decide to embark on a growth spurt, its managers roll up their sleeves and gather around the planning board to ensure each piece of the puzzle fits perfectly.

Strategic planning is the first step of the process, but strategies vary—by company, geography, geology, business structure, type of financing and a cornucopia of other factors. Some managers focus on a narrow market niche, such as gathering systems, while others practically seek to rule the world. And yet, in the U.S. at least, it all somehow fits together into one of the world's safest, most organized and cost-efficient national systems to move energy from upstream to downstream.

Without a doubt, much of the new infrastructure is being driven by unconventional plays, and the majority of those are natural-gas oriented. To date, the shale play discoveries cut a large U-shaped swath across the U.S., beginning in the Northeast with the monster Marcellus shale-gas play, sweeping down nearly to the Gulf shore as it traverses Louisiana and Texas, then curving north again into the Rocky Mountains. Unsurprisingly, many conventional plays lie in, above, under and around the shales.

One major midstream player, Enterprise Products Partners LP, has a substantial presence in most of the shale plays of the U.S., reaching from the Northeast to Texas, and from several East Coast states to the Rockies, with other facilities as far west as California.

“Our assets make up a cohesive system. We don’t like stranded assets. We have a value-chain approach.”

Enterprise Products Partners

As its executive vice president and chief operating officer Jim Teague says, Enterprise is a "builder of systems, not a collector of assets."

The Houston-based company has grown significantly since its initial public offering in July 1998, increasing its enterprise value from about $1.5 billion to nearly $50 billion currently. It has more than 50,000 miles of natural gas, natural gas liquids (NGLs), crude oil, refined products and petrochemical pipelines; some 192 million barrels of NGLs, refined products and crude oil storage capacity; about 27 billion cubic feet of natural gas storage; 25 natural gas processing plants; 21 fractionation facilities; six offshore hub platforms; Houston Ship Channel import and export facilities; and assorted barges and towboats.

And there is more on the way. The company builds its holdings according to its strategy of value-chain optimization, says Teague.

"Our assets make up a cohesive system," he says. "We don't like stranded assets. We have a value-chain approach. We want to be in every step of the chain, regardless of the commodity. We like to be geographically connected so what we buy or produce flows through our pipe, processing, fractionation, storage and distribution systems. Our strategy is to link it all together and then leverage around it."

The company keeps close to its core philosophy of being "very disciplined from the get go," and whatever it acquires or builds must fit in, or have the capability to tie into what it already has.

"That goes way back to when Dan Duncan (co-founder, chairman and majority shareholder) bought Shell Oil Co.'s natural gas liquids business," explains Teague.

In 1999, Enterprise acquired Tejas Natural Gas Liquids LLC from an affiliate of Shell Oil Co. in a transaction valued at $529 million. The purchase included interests in 11 natural gas processing plants with a combined capacity of more than 10 billion cubic feet per day; four fractionators capable of handling more than 200,000 barrels per day of NGLs; four NGL storage facilities with 28 million barrels of capacity; and a minority interest in the Dixie NGL pipeline. As part of the transaction, Enterprise also acquired a 20-year agreement for the rights to process Shell's natural gas production from the Gulf of Mexico.

"He was primarily buying a Louisiana business to go along with a big fractionation and storage asset Enterprise already owned at Mont Belvieu, Texas. The whole concept for the Louisiana deal was to tie it back to Belvieu and create the value chain. That was the beginning."

Meanwhile, Teague says more take-away capacity is required in West Texas, but points out that operators must know what to do with the NGLs when they reach Mont Belvieu.

"It's like a friend of mine said: 'You can get to Minute Maid Park, but who is going to usher you to your seat?' When the mixed NGLs get to Mont Belvieu, that's just part of the process. After that, it has to get to a fractionator, then go to storage, and finally into a distribution system to get the products to market. All those services have to be provided to get the products to the end-use customer."

One of those end users is the petrochemical industry. "I take my hat off to independent natural gas producers," says Teague. "What they've accomplished in exploiting these shale plays, and having the technology to exploit them, is a gift to the country and to petrochemical manufacturers. The petchems are globally competitive, now. They are modifying their plants to consume more NGLs, and many of them are talking about expansions."

Despite the new wealth of domestic gas production, which ensures steady work for Enterprise, Teague and his team are not complacent. "My nature as a contrarian makes me want to ask, what's going to go wrong? Today, the challenge is to keep up the pace."

Yet, so far so good. Enterprise recently announced plans for an expansion of its export terminal to nearly double the fully refrigerated export-loading capacity for propane and other NGLs to more than 10,000 barrels per hour, while enhancing its ability to load multiple vessels simultaneously. The expansion should be completed in the second half of 2012.

"At that terminal, we've been full during the past three years and we are sold out for the balance of this year and the next," says Teague.

It makes a lot of sense to expand, he notes. The company has seen record demand for its NGL-export services, driven by increased demand for NGLs as a substitute for expensive crude-oil derivatives. Enterprise's footprint lies in the midst of "all kinds of opportunities," from Rocky Mountain gas to the Eagle Ford shale play. By the end of the year, the company will have completed new take-away coming out of the Haynesville shale to run to the Mississippi River industrial corridor in South Louisiana that will have the capability to supply gas markets in the Northeast and Southeast U.S. through third-party pipelines.

Enterprise Products is continuing to expand its systems. Here, workers show their pride for America as they go about their jobs.

In fact, through 2011 and 2012, Enterprise will spend some $5 billion on construction projects—much of them already under way.

Recently, it held a binding open season for a proposed expansion of the Rocky Mountain portion of its NGL pipeline system. Originating in the Overthrust and San Juan Basin production areas, the 2,793-mile pipeline extends to Enterprise's Hobbs fractionator in Gaines County, Texas. At Hobbs, the system links to the Seminole Pipeline, enabling shippers to access Mont Belvieu. The current 275,000-barrel-per-day system could be expanded to add some 45,000 to 85,000 barrels per day, and could be available by third-quarter 2014.

Elsewhere, the planned expansion of the partnership's NGL-fractionation facilities at Mont Belvieu is aligned with the terminal project. Upon the completion of its fifth NGL fractionator later this year, Enterprise will have 375,000 barrels per day of NGL fractionation capacity at Mont Belvieu, coupled with 100 million barrels of NGL storage capacity.

Offshore, it has recently won interconnect and transportation agreements for natural gas production from four blocks in the Mississippi Canyon area of the Gulf of Mexico, including LLOG Exploration's Who Dat Field. The volumes will be delivered into Enterprise's Independence Trail pipeline through a new 10-inch-diameter, 17-mile gas export pipeline from the LLOG-operated Opti-Ex production platform to be installed at Mississippi Canyon Block 547. The export pipeline will be owned by LLOG Deepwater Development Co. LLC. The Independence Trail pipeline will move the gas to an interconnect with Tennessee Gas Pipeline at Enterprise's West Delta 68 platform.

And then there is the Eagle Ford. Enterprise will develop an integrated network of midstream services for producers there, and with good reason. According to the Railroad Commission of Texas, the Eagle Ford shale saw the number of drilling permits climb from 33 in 2008 to more than 1,229 in 2010.

In March, Enterprise signed a six-year agreement to provide Anadarko Petroleum Corp. midstream services in the Eagle Ford shale, including processing, fractionation and transportation services. To support that work, Enterprise plans to construct a new 46.5-mile, 24-inch-diameter pipeline through LaSalle County, Texas, and a new cryogenic processing plant in Lavaca County, Texas.

In fact, while one Eagle Ford producer laments the shortage of infrastructure to handle oil and condensate, saying "there are not enough trucks now and it will get a lot worse before pipelines are in service mid-2012 to take the pressure off," Enterprise has been busy building infrastructure.

Since late 2009, Enterprise has executed long-term contracts with some of the largest Eagle Ford producers, representing 600 million cubic feet per day of gas supply and more than 200,000 barrels per day of crude. Through planned construction projects and recent acquisitions by Enterprise, Eagle Ford producers will eventually be able to access the world's largest refining and petrochemical complex near the Houston Ship Channel and along the Texas Gulf Coast.

"Every year, we think that next year we are not going to have as many capital projects as the next," says Teague. "But, invariably, we do. Dan did a wonderful job of implementing his vision of connectivity through the value chain. It's his DNA that continues to drive this company."

Summit Midstream Partners

While Enterprise prefers to build connected systems, other midstream operators prefer the targeted approach. For example, Summit Midstream Partners LLC splits its attention between two prolific plays—the Barnett and the Marcellus shales.

"Our strategy is to buy and build infrastructure in unconventional basins," says Steve Newby, president and chief executive officer. "That is a core competency of ours. We call it buy-build-partner."

Newby says that a large amount of infrastructure is needed for unconventional production, and Summit is getting in on the action. While the company has a large operating asset in the core of the Barnett shale, it is now starting development in the core of the Marcellus shale.

Summit was formed in 2009 by Energy Capital Partners, a private-equity firm. "We are the platform company for their midstream business," says Newby. That year, Summit acquired 75% of DFW Midstream Services LLC from a subsidiary of Energy Future Holdings Corp. It purchased the remaining 25% of DFW in June 2010. DFW has long-term gas-gathering agreements with affiliates of Chesapeake Corp., XTO Energy Inc., EOG Resources Inc., Vantage Energy LLC and Carrizo Oil & Gas Inc.

In the Barnett, Summit holds a 125-mile gathering system in the core of the play and underneath the city of Arlington, Texas. "It's a very urban development in a very prospective and highly productive area—the core of the core of the Barnett. We are gathering gas for the largest wells to date."

The system includes two gathering stations with close to 50,000 horsepower of electric-driven, environmentally friendly (given the urban setting) compression, and more than 70 gas-receipt points. The asset will handle more than 500 million cubic feet of gas per day. Although the system will be under construction until October 2011, the system is 90% complete, says Newby.

"In the Marcellus, we are focusing in the northeastern portion where there is limited infrastructure for gathering. We are one of several companies with projects there," he says. "It's going to be a huge growth area for us."

Comparing the Barnett and Marcellus shale plays, Newby says the two are almost mirror opposites. "In the Barnett, the difficulties for us are on the construction side, due to the urban nature. We have a lot of street and highway crossings. But the permitting requirements and land issues, from a timing perspective, are workable. In the Marcellus, permitting and land are the challenges. The length of time it takes is challenging."

In the Barnett, Summit holds a 125-mile gathering system in the core of the play and underneath the city of Arlington, Texas, which includes two gathering stations with close to 50,000 horsepower of compression and more than 70 gas-receipt points.

But once the permits are in place, the construction will be less complex. "In the Northeast, it's basically rolling hills. Due to the development plan, we won't go through any major waterway crossings, but we do have some state forest issues. I wouldn't say it is a slam dunk, from the construction aspect, but it is less challenging than where we are in the Barnett."

Summit's initial phase of the Marcellus gathering system construction will begin in the early summer, and should be completed before the heavy winter weather. "We can construct in the winter there, although winter tends to slow you down. The hardest season for construction can be in the early spring, when everything starts to melt."

After the Barnett and Marcellus, what's next? Newby admits that the company has its eye on some other unconventional opportunities, but plays it close to the vest for now.

"In my 16 years in the midstream business, this is probably the most exciting development time there has ever been in this space. There are a lot of areas that need shale-scale infrastructure and we see tremendous opportunity for a lot of different people, including Summit."

Yet, challenges lie ahead. Newby has seen "cost creep" for labor and materials. During 2009, costs had "moderated," due to the economic downturn, he says. But they are rising.

"There is a lot of development going on, so there is a lot of pull on those resources. In general, the quality and professionalism of the labor force is still good, but rising costs are a concern most companies have. However, skilled labor could become constrained in the Marcellus."

Also, most projects are very capital intensive, Newby explains. Many projects require large-diameter pipes and lots of compression. "Those who are very well capitalized, like us, are going to be the ones that prosper," he says. "We are seeing the development angle becoming bigger, not smaller. Our producer customers are looking for providers that have the ability to scale up significantly."

At some point, when the assets in both plays, and perhaps others, are fully developed and operating, Summit might be launched into the public arena as a master limited partnership via an initial public offering. "That is the path we are going down," says Newby.

M3 Midstream’s workers discuss operational strategy near the slug catcher at the Battlefield amine unit.

M3 Midstream

In other Marcellus action, M3 Midstream LLC, also known as Momentum, recently signed long-term gas-gathering agreements with Chesapeake Energy Marketing Inc. and Statoil Natural Gas LLC as anchor customers on its planned Appalachia Gathering System (AGS), serving northern West Virginia and southwestern Pennsylvania.

The AGS will include some 130 miles of large-diameter gathering pipeline spanning Washington and Greene counties in Pennsylvania, and Monongalia, Marion and Harrison counties in West Virginia, moving as much as 730 million cubic feet per day with low- and high-pressure, centralized-dehydration and custom-compression services. Interconnects include the Texas Eastern Transmission pipeline in southern Pennsylvania with future access to Columbia Gas and Dominion Transmission systems.

During Momentum's initial formation in September 2004, the company developed greenfield projects in the Barnett shale (the Tolar gathering system), and in the Piceance Basin (Collbran Valley gathering system), and also acquired a system in the Powder River Basin (the Douglas system). All of those assets were sold to DCP Midstream Partners LP in 2007.

M2 Midstream was formed in 2007 and acquired a gathering system in East Texas. "That was more of a combination acquisition and greenfield development, because we really had to build it out quite a bit," says Frank Tsuru, president and chief executive. "And then we built a large greenfield gathering system in the Haynesville shale, which we divested to Enterprise Products Partners LP along with the East Texas asset in May 2010."

Altogether, the historical assets included some 1,800 miles of pipeline, 10 processing and treating plants and 33,000 horsepower of compression, with a combined throughput of more than 680 million cubic feet per day.

Today, the company is in its third formation and, as has been the case in previous years, its business strategies are based on flexibility and legwork. With some $510 million in private-equity backing, Momentum is flexible enough to pounce on emerging opportunities and develop a significant presence with leading producers, evidenced by the faith of such major producers as Chesapeake and Statoil.

“M3 Midstream LLC is in its third formation and, as has been the case in previous years, its business strategies are based on flexibility and legwork.”

"We are well funded," says Tsuru. "Our primary equity providers are Yorktown Energy Partners LLC and Ridgemont Equity Partners. We finished that raise late last summer. We also have several direct investors in the company. This significant and patient capital base allows our company to build large projects over several years without cash flow."

Adding to Momentum's flexibility is its group of core employees. "As we divest one company and form another, we maintain our core group, which totals about 35 employees, and is weighted towards the technical disciplines of engineering and construction," he says. "It is this skill set that allows us to simultaneously manage several large-scale, complex build-outs."

While the large projects are not accretive to Momentum during build-out, they are immediately accretive to the larger pipeline master limited partnerships to which Momentum sells, "and they like that," says Tsuru.

The company's second strategy is to do significant legwork before each project. "One reason we are successful is because we do a tremendous amount of legwork, before signing any of these customers up, to ensure the project gets off on the right foot. It's critical to be working with the regulatory groups and understand what is necessary to get these projects done."

In Appalachia, the company plans to spend substantial amounts of money and hire many local people. "It's important for the public to know that a lot of great things will be happening for their economy up there by virtue of this resource," he says.

Because Tsuru and his team look for geographic areas with poor or inadequate infrastructure with high organic growth opportunities, the Northeast was a logical target.

"That's why we zeroed in on the AGS. It's in an area that does not have infrastructure suitable for the high-volume, high-pressure Marcellus wells, and we see a tremendous amount of organic growth in that area."

Along with being in the right area, Momentum seeks to partner with the right producers, and will continue to focus mostly on shale plays. Tsuru believes the Marcellus and Eagle Ford shales are the two most prolific areas of exploitation for now, but notes that other opportunities lie with liquids-rich conventional plays that can be as economically feasible for producers as shale plays.

"I think people have missed that view a little bit, because everyone is jumping on the shales, but there is a lot of opportunity in liquids-rich conventional horizontal gas plays," he says.

How about oil? "We have a project right now with a marine terminal in the Eagle Ford shale. We plan to gather crude and condensate for delivery to Corpus Christi, Texas," he says, and adds, "We've got our fingers in lots of little cookie jars."

Copano Energy

Another Eagle Ford player, Copano Energy LLC, based in Houston, was in the right place at the right time and has developed strategies to take full advantage of the developments in the Eagle Ford shale.

“Our strategy has been to identify and execute on organic growth opportunities within our existing operating areas and we are doing just that in the Woodford, Barnett and Eagle Ford shale plays.”

"Midstream dynamics have changed quite a bit in recent years," says Jim Wade, senior vice president of Copano and president and chief operating officer of Copano's Texas business unit. "And Copano is changing with them. We are looking beyond our historical focus on natural gas gathering, processing, treating and compression, to downstream services like NGL fractionation and NGL y-grade and purity product transportation."

Copano mostly has grown by acquisitions, beginning 20 years ago when John Eckel, then chairman and chief executive, began his midstream vision with a single 20-mile pipeline in Copano Bay, near Corpus Christi, Texas. From there, Copano acquired other small gathering systems in South Texas before progressing to larger acquisitions. Copano bought its Houston Central plant in 2001 and went public in 2004. The company expanded into Oklahoma and then the Rocky Mountains with acquisitions in 2005 and 2007.

Copano now has assets in Oklahoma, Texas, Wyoming and Louisiana. These assets include 6,400 miles of gas gathering and transmission, 250 miles of NGL pipelines, and nine gas-processing facilities with over 1 billion cubic feet per day of processing capacity and 22,000 barrels per day of fractionation capacity. Many of these assets are well positioned to provide midstream services to emerging shale resource plays.

"Our strategy has been to identify and execute on organic growth opportunities within our existing operating areas," says Wade, "and we are doing just that in the Woodford, Barnett and Eagle Ford shale plays."

In the Eagle Ford shale, Eagle Ford Gathering LLC, a joint venture with Kinder Morgan, plays a key role in Copano's strategy.

"We've had a relationship with Kinder Morgan since 2001," says Wade. "Since then, we've gathered gas into Kinder's 30-inch Laredo to Katy mainline from multiple gathering systems and processed the gas at our Houston Central Complex, located just south of Columbus, Texas. The Eagle Ford Gathering joint venture is a logical extension of our relationship with Kinder."

Eagle Ford Gathering is constructing 111 miles of pipeline to move rich Eagle Ford shale gas. Over the past nine months, the joint venture has reached long-term agreements to provide rich-gas gathering, transportation, processing and fractionation services to SM Energy, Chesapeake Energy and Anadarko E&P in McMullen, LaSalle, Dimmit and Webb counties.

A rainbow frames the processing equipment at Copano Energy’s Paden plant in Oklahoma.

Outside of the Kinder joint venture, Copano is using its existing and expanded large-diameter lines in Live Oak, DeWitt and Karnes counties to gather up to 300 million cubic feet per day of rich gas in the northern Eagle Ford shale. Copano plans to extend these systems through Lavaca County and on to the Houston Central Complex before the end of the year.

Another Copano strategy, specific to the Eagle Ford shale play, has been finding timely and cost-effective solutions for growing NGL volumes. The typical industry approach for NGLs is to seek delivery of y-grade product to the already constrained Mont Belvieu hub north of Houston for fractionation and subsequent distribution.

Copano, on the other hand, decided to begin fractionating at the Houston Central Complex and to access downstream NGL markets along the Gulf Coast south of Houston.

"We took a different approach to the NGL bottlenecks," says Wade. "In 2010, we refurbished and started up our existing 22,000-barrels-per-day fractionation facility at the Houston Central Complex. By the third quarter of 2011, we will have doubled that fractionation capacity to 44,000 barrels per day."

Copano now moves fractionated product to Dow Chemical Co. through Copano's purity ethane and propane pipelines. "We move product directly to the petrochemical customer, as opposed to the Mont Belvieu hub, to avoid additional fees that would be charged for distribution to market from Belvieu," he explains. "The petrochemical customers we have targeted also have storage capability, which provides an additional level of reliability for us and our customers, since our product does not go through Belvieu."

As another example of its integrated gas and NGL strategy, Wade explains that, "Copano, along with its partners, was able to offer unique solutions to satisfy Formosa Hydrocarbons Co.'s needs for both gas and NGLs at its Point Comfort petrochemical complex."

Eagle Ford Gathering is extending its rich gas pipeline more than 70 miles to deliver Eagle Ford gas to Formosa's Point Comfort processing plant.

"Formosa had existing gas-processing and fractionation space available at their complex and was willing to expand those facilities to accommodate our customers' growing Eagle Ford production," says Wade.

Also, Copano entered into an agreement to supply up to 37,500 barrels per day of additional y-grade product to Formosa to support Formosa's existing, and ultimately expanding, fractionation facilities. Liberty Pipeline Group, Copano's joint venture with a subsidiary of Energy Transfer Partners LP, is laying an 83-mile y-grade pipeline from Copano's Houston Central Complex to Formosa's Point Comfort facility to accommodate the delivery.

So, now that a portion of the Eagle Ford shale play's gas and NGLs is sorted out, what about oil? "In this play, producers are also looking for outlets for crude oil and condensate," says Wade. "Copano is one of the many companies developing solutions to these issues as well."

TexStar

Like many of the majors, which combine upstream production with their own midstream systems, San Antonio-based Blackbrush Oil & Gas LP, an upstream company, and TexStar Midstream Services LP, a midstream company, find that strategy suits them as well. The companies were formed in 2004 with private equity from EIG Global Energy Partners and HM Capital Partners LP. They work hand-in-hand to develop the prolific Eagle Ford play in South Texas.

"Our company is unique in that we have an upstream and midstream business," says Phil Mezey, co-chief executive and chief operating officer for TexStar. "We wanted to take advantage of the synergies between the upstream and midstream parts of the business. Our focus is to provide producer services back to the wellhead. We are not looking at providing big-diameter-inch intrastate services. We are focused on gathering, compression, treating and, if need be, processing."

TexStar is the second company formation for this management team. TexStar I, with about 1,500 miles of pipe and several processing plants, was sold to Regency Energy Partners LP in 2007. "After we sold that and started drilling again, they gave us the name back and we started off once again, but much smaller."

TexStar's business strategy is to get into areas lacking infrastructure without limiting its ability to develop the resource. "We provide our own infrastructure as we need to," says Mezey.

Today, Blackbrush operates about 60 wells while partnering with Goodrich Petroleum Corp., which is running two rigs. "We have a 33% interest in those two. By June, we will be running two rigs ourselves for the rest of this year. With the last couple of wells coming online, we are at about 1,500 to 2,000 equivalent barrels per day of net production. It's growing fairly rapidly."

TexStar has about 150 miles of gas-gathering assets in Frio and La Salle counties gathering Eagle Ford gas. The system is low-pressure, handles sour gas and provides compression and gas-treating services.

While growth is a good thing, it can also be a challenge. "One of the unique aspects of the Eagle Ford is that, while there is a lot of gas-transmission infrastructure here, the gathering systems need to be built out," says Mezey. "Also, when we looked around for opportunities, we saw that the gas produced had to be processed, because it is simply too rich to go in the pipelines. So processing has to be done. And there has to be a place to take the NGLs. We see that, the y-grade product, as one of the biggest challenges in South Texas right now."

To meet pipeline tariff specifications for gas transportation, rich-gas plays require reduction of the gas stream's Btu value to meet pipeline tariff requirements. If not removed, the excess liquids could condense and cause transmission problems. The liquids are recovered as a y-grade mix, accumulated in an on-site tank, and are later trucked to a refinery for fractionation into valuable hydrocarbon components such as propane, butane and heavier hydrocarbon products. Blackbrush's gas has about 1,200-Btu content, and it is sent to Enterprise Products Partners LP to be processed.

Meanwhile, the company saw another opportunity. In December 2010, TexStar, Targa Resources Partners LP and Teak Midstream LLC entered into a memorandum of understanding for the development of a new pipeline to transport NGLs from Eagle Ford processing facilities to Mont Belvieu, Texas. The agreement includes a plan for a new fractionation train at the Targa-operated Cedar Bayou Fractionation (CBF) facility.

"We are working with Targa and Teak to provide processing outlets for some of the other producers too. To be able to do that, we had to come up with a y-grade solution," explains Mezey.

The new pipeline is designed to provide additional capacity to customers in the Eagle Ford shale area and to accommodate a future extension into the Permian Basin of West Texas. CBF will be expanded to a final fractionation capacity of about 353,000 barrels per day. Teak will install and operate a new cryogenic 200-million-cubic-feet-per-day processing plant, while TexStar will install and operate a new cryogenic 300-million-cubic-feet-per-day facility. The two plants will produce about 50,000 barrels of NGLs per day and serve 12 counties.

But the work doesn't stop there. In April, TexStar and NuStar Logistics LP formed a plan to develop a new pipeline system to transport Eagle Ford shale crude and condensate to Corpus Christi. TexStar will build and operate a 65-mile, 12-inch pipeline to move 120,000 barrels per day of crude and condensate from Frio County to Three Rivers. The company will also build at least two truck unloading facilities along the pipeline to gather crude oil produced in Atascosa, Frio, LaSalle, McMullen and Live Oak counties.

At Three Rivers, the TexStar pipeline will be interconnected with a new storage facility to be constructed by NuStar. That facility will be connected to NuStar's existing 16-inch pipeline to transport some 200,000 barrels per day into NuStar's Corpus Christi North Beach Terminal, which has about 2 million barrels of capacity. The companies expect to complete construction and begin service on the projects in the second quarter of 2012. Until this project is completed, much of the oil will continue to be moved by trucks.

"We are working with NuStar to get the oil to market," says Mezey. "The trucking is becoming a big issue down here because trucks are in short supply. We need to make sure we can keep the wells flowing, and to do that, we need to get the oil to the market. We see trucking being tight for the next 12 to 18 months."

TexStar operates four bulk trucks, which carry about 180 barrels each, to get the oil from lease roads to the highways. The company owns a terminal where the purchaser, Shell Oil Co., can pick up the oil 24 hours per day, seven days per week.

The company has a three- to four-year development plan focused on the Eagle Ford trend. Altogether, the upstream company, Blackbrush, has about 149,000 acres there and its focus will continue to be on South Texas. Mezey plans to drill more horizontal multistage frac wells in conventional tight sands later this year, and build out some infrastructure for that, "which should really take off in 2012," he says.

Going forward, most of the companies' growth will be organic, says Mezey. "We've had more than 60,000 acres dedicated to our system. However, we have just signed another contract, so we are closer to 100,000 acres. Obviously, being in the Eagle Ford play, we've seen a lot of activity. We've added about 30 miles of pipe during the past three months, and we have just started up our second treating facility."

He believes that the economics of NGLs are here for the long run. With so much production from the shale plays, there will continue to be a cap on gas prices, but the liquid prices will continue to be driven by oil pricing.

"Internally, we think it will contract back to the 10-to-1 price ratio, as opposed to the current 20-to-1, so we are building our budget around that."

To that end, TexStar is evaluating a build-out of a gas header out of Frio and LaSalle counties to the Three Rivers area to connect to other gas processors such as ETC Corp., Kinder Morgan Energy Partners LP, Copano Energy LLC and Duke Energy Corp. Currently, the company is buying rights-of-way for that project.

"This is a resource play, and we have potentially 900 locations left to drill. As we become even more successful, we won't have enough capital to keep it. It'll make sense, in about five years, for us to be acquired by a public company that can fully exploit this resource," says Mezey. And if all that doesn't keep the two companies busy enough, perhaps they will snare the $350-million refinery off-gas project in Louisiana they are evaluating.

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