Arkoma Basin Activity Spurs Pipeline Expansion

Growing natural gas production from the Woodford Shale play in Oklahoma’s Arkoma Basin has prompted several operators to build new pipeline systems as a means of increasing takeaway capacity in the region. One of the key players in the region is MarkWest Energy Partners, which last year announced that it had submitted a prefiling application with the FERC to construct a new interstate natural gas transmission pipeline for this purpose.

The new Arkoma Connector Pipeline would provide needed pipeline capacity to transport Woodford Shale production to new markets. It would consist of approximately 50 miles of 24-in. pipe running through Coal, Atoka, and Bryan counties in southeastern Oklahoma. As planned, the line would originate at MarkWest’s gathering system in the Woodford Shale production area in southeastern Oklahoma, north-northeast of Coalgate, then extend south to where it would interconnect with both the Midcontinent Express Pipeline and the Gulf Crossing Pipeline. MarkWest also says it plans to construct a new compressor station approximately eight miles north-northeast of Coalgate, Okla., and a mid-line compressor station. The new system would have a capacity of up to approximately 625,000 dekatherms per day. Newfield and Chesapeake are two major producers in the Woodford Shale that plan to ship natural gas on the Arkoma Connector Pipeline. The new system will provide significant additional outlets for producers in the Woodford Shale as volumes continue to rapidly increase. MarkWest recently executed agreements with significant Woodford producers, including Newfield Exploration Co., to provide transportation capacity in excess of 500,000 MMcf/d on the Arkoma Connector Pipeline.

Chesapeake Energy is installing compressors like this near Albion, Ark., to handle Fayetteville production. (Photo courtesy of Lowell Georgia)

In conjunction with the Arkoma Connector transportation agreements, MarkWest and Midcontinent Express Pipeline LLC (MEP) have also entered into an option agreement that provides MarkWest with a one-time right to acquire 10% of the equity of MEP after construction is complete on the Midcontinent Express Pipeline and it is placed into service. MEP is a 50/50 joint venture between KinderMorgan Energy Partners LP and Energy Transfer Partners LP. If the option is exercised, KinderMorgan and Energy Transfer Partners will each own 45% of the equity in the project, while MarkWest will own 10%. The Midcontinent Express Pipeline, connecting Bennington, Okla., and Perryville, La., will have initial capacity of 1.4 Bcf/d. KinderMorgan is managing the construction of and will operate the pipeline. The approximately US $1.3 billion project will extend from southeast Oklahoma, across northeast Texas, northern Louisiana and central Mississippi, to reach an interconnection with the Transco Pipeline near Butler, Ala.. The approximately 500-mile pipeline will consist of 262 miles of 42-in., 197 miles of 36-in., and 40 miles of 30-in. pipe, and have up to 13 receipt and/or delivery interconnections. The delivery interconnections will provide access to numerous downstream markets, including those served by the NGPL, Transco, Texas Eastern, Tennessee, Columbia Gulf, Texas Gas, Southern Natural, Destin, and ANR pipelines. Midcontinent Express is scheduled to be in service by March 2009.

“The Woodford Shale is one of the fastest-growing resource plays in the United States, and we are very pleased to announce these significant projects that will support the continued success of our producer customers,” said Frank Semple, president and chief executive officer of MarkWest. “In these rapidly growing resource plays, we believe it is critical to ensure that the produced gas has a clear path to liquid markets. The Arkoma Connector Pipeline and MEP are critical links to providing market access for Mid-Continent producers.”

This recent announcement follows a previous announcement by MarkWest of its plans to invest up to $350 million in the 2006-2010 time frame to build a significant amount of gathering pipelines in the Arkoma Basin of Southeastern Oklahoma. This infrastructure is designed to support expanded drilling plans by Newfield Exploration Co. The gathering pipelines and related facilities will serve about 200 sq miles in four counties. MarkWest will operate the pipeline.

Newfield has allocated an additional $150 million in capital expenditures for expanded exploration this year in the Arkoma basin. “Our growth requires the installation of significant midstream infrastructure,” said Lee K. Boothby, president of Newfield Mid- Continent. “Partnering with MarkWest allows us to benefit from their proven expertise in gathering and transportation and allows Newfield to focus its efforts on drilling and production.” The gathering system being constructed by MarkWest will support Newfield’s Woodford shale operations. The gathering system will include 400 miles of pipeline with capacity of more than 500MMcf/d. Newfield has drilled more than 100 vertical wells and 30 horizontal wells in the Woodford shale play. Average production from the last five wells totaled 3.7 MMcf/d.

There are a number of existing systems to help Arkoma Basin producers market their gas.

In addition to these new construction projects, there are a number of existing systems to help Arkoma Basin producers market their gas. These include Crosstex Energy’s Arkoma gathering system, an approximately 140-mile, low-pressure gathering system in southeastern Oklahoma. It delivers gathered gas into a mainline transmission system. In 2007, throughput on the system averaged approximately 18,000 MMBtu/d. Another existing system is owned by Penn Virginia Resource Partners LP. Its Arkoma System is a stand-alone gathering operation in southeastern Oklahoma’s Arkoma Basin, and is comprised of three separate gathering systems, two of which are 100% owned with the third system being 49% owned. The company operates and maintains all three systems. The Arkoma System consists of a total of approximately 78 miles of natural gas gathering pipelines, ranging in size from 3-in. to 12-in. diameter. Three compressor stations are operating across the Arkoma System.