Last year, Tradition Midstream LLC closed a $200 million equity commitment from Denham Capital. The funds will be used to take advantage of the increasing need for new and expanded infrastructure to serve continued growth of natural gas, liquids and crude oil production in the U. S.

John O'Shea, the company's chief executive, was the co-founder of Millennium Midstream Partners LP from 2002 until its sale to Eagle Rock Energy Partners LP in 2008. During Millennium's history, it was named the fastest growing private energy company in America and was number 63 on the Inc 500.

Prior to founding Millennium, O'Shea was senior vice president of commercial development for Dynegy Inc., and served as vice president of straddle plants, vice president of technical services and held various business development roles.

He began his 20-plus-year career with Shell Oil and earned an MBA from The University of Texas and a B.S. in Petroleum Engineering from Louisiana Tech University and serves on the boards of Strake Jesuit High School and Cristo Rey Jesuit High School.

MIDSTREAM After starting your career in upstream energy, what drew you to the midstream sector?

O'SHEA I started my career with Shell Oil in the upstream, but I was a victim of the first price collapse of crude, when it dropped from $40 per barrel to under $10 in the mid-1980s. I went back to school and got a master of business degree, and then got into consulting. In 1990, I joined Natural Gas Clearinghouse when it was a startup company. They began a midstream business, which later became Dynegy. In business development, I learned about pipelines, processing and the natural gas liquids fractionation business by making acquisitions, managing midstream assets and growing various businesses.

MIDSTREAM What types of acquisitions were those?

O'SHEA We acquired Occidental Petroleum Corp.'s midstream business, Trident Inc. and Chevron Corp.'s midstream business, which was Warren Petroleum LLC. We worked to put all three of those business units together. I worked business development for about six years, ran the pipeline business and then the South Louisiana processing business, before going into corporate development with midstream and power assets. I like the people in the midstream sector. Because of my petroleum engineering background, I understand the producers' concerns in wanting to be sure that the wellhead production moves consistently every day. It helps to be able to straddle both the upstream and downstream businesses.

MIDSTREAM But then the industry changed again?

O'SHEA Yes, when the energy merchants were collapsing in 2001 and 2002, I ventured out on my own, with my partner Kevin Coxon and some angel investors. We started Millennium Midstream Partners LP at a time when the industry was in a downturn. We grew to become the fastest growing U.S. energy company in 2007 and eventually sold it to Eagle Rock Energy Partners LP in 2008. In growing the business, we put together a senior management team from Dynegy, including our head commercial guy, Don Brown, our head of engineering and operations, Bryan Johnson, and the chief financial officer, James Lee. The fourth guy in our team, Mark Edge, is a right-of-way landman, whom we met when Dynegy bought Cleco's gas business in 2004. We saw that dealing with landowner issues was vital to our success. It made us timely in getting pipes, compression and other facilities in place, and gave us good relations with the people whose land we were on every day.

MIDSTREAM Have you been in the midstream business ever since?

O'SHEA I was out of the business for about three years when we sold to Eagle Rock Energy Partners LP. I took a sabbatical from the industry and spent time working with various non-profits. But when the Millennium team got back together and formed Tradition in 2010, and Denham funded us in 2011—that's when I came back in.

MIDSTREAM Has the midstream business changed significantly since the 1980s?

O'SHEA Oh, yeah. It's interesting, when we look at the history of Texas. The wildcatter is what the world knows Texas for, and most of the wealth that has been created has been from exploration and production. But during the past decade, a lot of the wealth in the energy business has come from the midstream sector. Guys like Dan Duncan and Rich Kinder have put pipelines and processing assets together to build this large infrastructure. Midstream was a forgotten industry for a long time, but now it is in the spotlight. Now, during the past three to four years, we are seeing quite a few private-equity firms whose sole focus is to invest in midstream. This is a huge growth in capital that is available for this business. When Rich Kinder left Enron Corp., went to Wall Street, and changed pipeline master limited partnerships (MLPs) from dividend-yield to growth platforms in the mid-1990s, it was the launch of a new industry. Today, that industry includes regulated pipelines, refined products, terminals and propane MLPs, in addition to the typical gathering and processing businesses.

MIDSTREAM And yet, Tradition Midstream is a limited liability company, as opposed to an MLP.

O'SHEA We strategically structured Tradition Midstream to provide the most exit optionality, whether it be a trade sale, or potentially an IPO, or other options. In the event that Tradition Midstream was to go public, Tradition LLC would be the general partner (GP) and hold the acquired assets. At that time, we would create an MLP and drop down some of the assets, but the LLC would continue to hold the majority of the assets. This is the model we've seen since the mid- 2000s when companies were created as pure MLPs. Now we have the GP with a large base of assets that can drop down the assets to the MLP so investors see both yield and growth. MLPs prefer to generate earnings growth, either on their own or through greenfield projects but having the safety net of the GP has been what the market has rewarded over these past few years

MIDSTREAM Why a public MLP instead of a private MLP?

O'SHEA Our private-equity sponsor, Denham Capital, is focused on building intrinsic value and reinvesting cash flow into the business as opposed to paying out dividends. So we probably wouldn't form a private MLP with yield, which is what we did with Millennium. That company had angel investors from 2002 until 2006, and then we formed a private MLP when we brought in Kayne Anderson Capital, Tortoise Capital and Wells Fargo Capital. We started distributing cash at that point.

MIDSTREAM Do you plan to grow generally via acquisitions?

O'SHEA No. With the team we've put together, we are planning organic growth. We might make some acquisitions along the way, but with the engineering, operations and land experience that we have with our executive team, we are built to go do greenfield newbuild projects in infrastructure-poor areas, whether that is in the Marcellus, Bakken, the Rocky Mountains or elsewhere. There are even some established producing basins such as West Texas that may prove to be infrastructure deficient. Any acquisitions that we undertake will be more opportunistic than strategic.

MIDSTREAM How about the Eagle Ford?

O'SHEA We think that there is enough infrastructure coming on board there, so we are not focused on that right now. If a producer wants to put in some field gathering or processing, we could do that, but it looks like the infrastructure will be sufficient for the wet gas windows that are being drilled today.

MIDSTREAM And the Marcellus and Utica shale plays?

O'SHEA We've been looking at that for gas gathering, processing and liquids fractionation. We see that as a great growth area if we get contractual arrangements with producers. The wet gas window of the Marcellus and Utica are opportunities for us to put our newbuild expertise to use. We've talked to some people about the siting of plants and where to send the fractionated products, such as propane, butane and natural gasoline. In a few years, as the Mariner West and Enterprise Products Partners LP projects come online, we would add ethane to that.

MIDSTREAM How about the Bakken and Niobrara?

O'SHEA We are looking at those crude-focused plays. In the Bakken, Oneok Inc. has a dominant system there, so we would work around the edges of their systems. Gas is still being flared in the Bakken, so that will need to be solved sooner rather than later. I see opportunities in the Rockies, in general, as well as in West Texas in the Granite Wash and Bone Springs.

MIDSTREAM Do you see any opportunities in the conventional-play basins?

O'SHEA Until gas prices rise to more than $4 per thousand cubic feet, I don't see a whole lot of the conventional areas coming back. And to the extent that they do come back, they will probably be small, and will already have adequate infrastructure in place, due to production declines from the lack of drilling during the next one to three years. As for conventional oil, the growth will likely be in deepwater plays, which is not an area that we are looking at today.

MIDSTREAM Would you consider working joint ventures in any of your target areas?

O'SHEA Yes. One of the unique features of Tradition Midstream is that we have discussed this with producers on projects we are evaluating. Some like that, and some don't want to be in the midstream business. But there could be projects with gas or even produced water. We view our relationships with producers as partnership anyway, so if they want to invest alongside of us, we are set up to where we could do that.

MIDSTREAM Although liquefied natural gas processing (LNG) is out of Tradition Midstream' s area, do you have any thoughts on whether the U.S. will export LNG?

O'SHEA I think it is a great idea. We certainly have the resources. One of my concerns about the Eagle Ford gas is that it is at the end of the pipeline, the farthest away from gas markets. We are already seeing Appalachian gas backing out the Midcontinent and Rockies gas. That will push South Texas gas back into the Southwest. Texas is one of the largest markets for gas, but will the Eagle Ford gas find a home as Appalachia continues to be drilled? It could be exported to Mexico, but Mexico produces more gas than they burn, although the production and markets are in different regions. The other option is to liquefy it and send it overseas where prices are $9 to $14 per thousand Btu versus $2 to $3 in the U.S. today. It makes economic sense. I hope the government continues to support this shift, because I think it is a good option for the industry. Because more gas is being produced along with oil, we would not like to see South Texas oil production shut in because the gas can't be moved. We certainly need all the domestic crude that we can produce.

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