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Tallgrass, Silver Creek JV to Develop Oil Pipeline in Powder River

Tallgrass Energy Partners LP and Silver Creek Midstream LLC said Wednesday they have formed a joint venture (JV) to develop the Iron Horse crude oil pipeline to serve Wyoming's Powder River Basin (PRB).

The 100,000 b/d Iron Horse Pipeline, which is expected to enter service in 1Q2019, would connect Silver Creek's newly constructed gathering system and Midway terminal in Converse County, WY, to aTallgrass terminal and other pipelines at Guernsey, WY, in neighboring Platte County. Iron Horse would also connect to Tallgrass' Pony Express crude oil pipeline system at Guernsey. Both of the terminals are under construction.

Under the JV, both Iron Horse and Pony Express plan to create a joint tariff to offer producers and marketers a single rate and direct access from the PRB to the multiple refineries along the Pony Express route, and to the crude oil hub at Cushing, OK. The JV also calls for Tallgrass to sell a 50-mile crude oil gathering system in the PRB, formerly owned by Outrigger Energy, to Silver Creek.

The companies expect to close on the formation of the JV, as well as the sale of Tallgrass Crude Gathering LLC, later this month. The JV would also give Silver Creek, based in Irving, TX, an immediate presence in the PRB.

Tallgrass Chief Commercial Officer Matt Sheehy said the Iron Horse Pipeline "will quickly become an important path to bring Wyoming production into Guernsey and onto Pony Express." Likewise, Silver Creek CEO J. Patrick Barley said the JV "will be able to provide optimal midstream service solutions for producers in the PRB."

As part of the JV, Tallgrass also agreed to contribute about 40 miles of 16-inch diameter natural gas pipeline owned by Tallgrass Interstate Gas Transmission LLC. The pipeline, which connects Labonte, WY, to Guernsey, is undergoing abandonment from gas service. A 40-mile, 16-inch diameter pipeline would be built alongside the pipe being converted from gas to oil. Tallgrass is to serve as operator and own a 75% stake in the JV, while Silver Creek would own the remaining 25%.

The JV partners said Iron Horse's capacity could be expanded above 100,000 b/d, depending on interest by producers and marketers in the PRB. The companies "anticipate a significant amount of Iron Horse's initial capacity will be contracted prior to the pipeline being placed into service."

Leawood, KS-based Tallgrass said it expects to spend about $150 million on the JV, a figure that includes construction costs for the Iron Horse Pipeline and its new terminal at Guernsey, but excludes proceeds from the sale of its PRB gathering system.

Also Wednesday, Tallgrass said subsidiary BNN Water Solutions LLC has acquired water infrastructure assets in the Bakken Shale for $95 million. BNN acquired Buckhorn SWD Solutions LLC and Buckhorn Energy Services LLC, which collectively own 10 saltwater disposal wells and a 39-mile produced water gathering system serving about 133,000 acres for multiple Bakken producers, including XTO Energy Inc.

According to Tallgrass, BNN plans to spend an additional $45 million this year to expand the produced water gathering system in order to accommodate an expected increase in drilling and completions in the Bakken.

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