Crestwood Midstream Partners LP (NYSE: CMLP) reports a further expansion of its Willow Lake Project in the Permian Delaware Basin, which includes the conversion of a portion of its Las Animas natural gas gathering system into rich gas service and the construction of an initial cryogenic natural gas processing plant.
The Willow Lake Project, located in Eddy County, New Mexico, was originated in 2013 (Phase 1) through the conversion of an existing Crestwood gathering pipeline and installation of natural gas liquids field separation equipment to support the drilling efforts of Legend Natural Gas III LP, a subsidiary of Legend Production Holdings LLC, a Riverstone Holdings LLC portfolio company, targeting the Second Bone Spring formation along with other producers in the region.
Based on Legend’s successful 2013 drilling program, Crestwood and Legend have entered into a 10-year, fixed-fee gas gathering and processing agreement covering an area of mutual interest of more than 107,000 acres in the Willow Lake area. Additionally, Crestwood has purchased Legend’s existing gas gathering system which is being integrated into Crestwood’s existing footprint.
Anchored by the Legend contract, Phase 2 of Crestwood’s Willow Lake Project will include construction of a cryogenic natural gas processing facility (the Willow Lake Plant) with a capacity of 20 million cubic feet per day (MMcf/d) and additional gathering pipelines across the dedication area to support Legend’s 2014 and 2015 drilling program.
Upon completion of the Willow Lake Plant, and based on area drilling activity and discussions with current operators, Crestwood is expected to further expand (Phase 3) the Willow Lake gathering system and install a second gas processing plant (the Delaware Ranch Plant) with an expected capacity of approximately 120 MMcf/d.
The Delaware Ranch Plant is currently owned by Crestwood as a result of its 2012 acquisition of Devon’s West Johnson County gathering system and processing plant located in the Barnett Shale region. Phase 2 of the Willow Lake expansion plan is estimated to cost $25 million to $30 million and is expected to be completed in the third quarter 2014. Phase 3 of the development plan will be initiated when additional producers drill sufficient wells to warrant the additional processing capacity. As an additional service to area producers, Crestwood will be purchasing the natural gas liquids produced at the plants which may include initial trucking, pipeline and marketing services.
The Permian Delaware Basin is an emerging oil and natural gas liquids rich region with approximately 200,000 barrels of oil equivalent per day currently being produced. Production is supported by producer economic returns of approximately 50% from the Bone Spring and 40% from the Wolfcamp formation according to recent studies. Additionally, Eddy County, New Mexico, has been the leading county in the region from a production and drilling activity standpoint since the play began in 2011.