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Midstream Buildout Targets Avalon Shale

Activity in the Delaware Basin of West Texas-southeastern New Mexico -- specifically the Avalon and Wolfcamp shales and Bone Spring formation -- has heated up enough for Nuevo Midstream LLC to take its gas processing plant near Orla, TX, out of mothballs.

Nuevo, a Houston-based start-up, said Monday it has acquired enough acreage, volume and well commitments to support the recommissioning of the Joule-Thomson refrigerated processing plant and fractionator.

"The Avalon Shale-Bone Spring play has been developing in New Mexico for the last several years, and it's basically working its way down," Nuevo CEO Jay Lendrum told NGI's Shale Daily. "We've been keeping an eye on it. It's just getting stronger and stronger, and there are a lot of major players that are getting into the area, so we just thought it was time to step up and activate our plant."

The plant was built by Conoco in the 1980s to handle production in the region from shallower formations, Lendrum said. It was acquired by parties contributing assets to Nuevo about five years ago, well before today's development of the Avalon play was foreseen, he said. To his knowledge the plant is the westernmost processing plant in Texas and is well positioned "to the extent that anything else develops farther west in the Delaware Basin. That's going to be our focus now."

Nuevo recently secured a 6,500-acre dedication in the Avalon Shale. The company also said it will upgrade its Ramsey gas gathering system with increased treating and compression capacity, 11 miles of new 8-inch diameter pipeline and a new interconnect with the Enterprise Products pipeline nine miles south of the processing plant, bringing the total system to 141 miles of high- and low-pressure pipeline. The gathering system crosses Eddy County in southeast New Mexico and Culberson, Loving and Reeves counties in West Texas and currently serves 38 gas producers.

Cimarex Energy Co. said last week it is in the early evaluation stages of unconventional liquids-rich gas plays targeting the Wolfcamp, Avalon and Cisco/Canyon shale formations in the Delaware Basin. The company said it has 125,000 net acres prospective for a combination of some or all of these shale formations.

Concho Resources has been active in the Bone Spring. During the first quarter it drilled or participated in 23 Bone Spring wells (13 operated), the company said. During the first quarter Concho completed 19 wells that were drilled prior to the quarter. Its production from Bone Spring averaged about 4,000 Boe/d, Concho said.

Lendrum said other familiar names seen in around the Delaware Basin plays include Chesapeake Energy Corp., Devon Energy Corp., Anadarko Petroleum Corp. and Clayton Williams Energy Inc. Drilling projections from numerous existing and potential customers are expected to support further system extensions and capacity upgrades, Nuevo said.

"Recognizing the need for a rapid and robust response to the accelerating producer activity in the area, we have taken the first step in a planned, multi-phase expansion to serve producers pursuing the liquids-rich Bone Spring, Wolfcamp and Avalon Shale plays and looking for the infrastructure and flexible downstream options they need to move gas to high-value markets," Lendrum said.

"We are in advanced discussions with a number of producers regarding acreage and production commitments to support additional significant expansion of the processing and treating capacity of the Ramsey system as well as further extensions to our gas gathering lines with an ultimate goal of as much as 250 MMcf/d in total processing capacity serving these emerging plays."

The plant recommissioning and expansions to the Ramsey system are expected to be complete by August. The second phase of Nuevo's expansion anticipates the addition of 30-50 MMcf/d of cryogenic processing capacity at the Reeves County facility coming online in October.

Nuevo, which is focused on the Permian Basin, was formed with a $65 million commitment from EnCap Flatrock Midstream, a private equity firm based in San Antonio; Torch Energy Advisors Inc.; and Petroleum Fuels Co. Inc. The commitment includes contributions of assets and management services by Torch Energy and Petroleum Fuels. Lendrum is president and COO of Torch (see Shale Daily, April 18).

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