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EnLink, NGP to Expand NatGas Midstream Services in Permian's Delaware

EnLink Midstream is partnering with an affiliate of NGP Natural Resources XI LP to expand natural gas gathering services in the Permian Basin's Delaware play.

The joint venture (JV), built by a subsidiary of Dallas-based EnLink Midstream Partners LP and EnLink Midstream LLC (50.1%) with NGP (49.9%), initially would construct Lobo II, a cryogenic natural gas processing facility with up to 120 MMcf/d of capacity and associated infrastructure sited in Loving County, TX, and New Mexico's Eddy and Lea counties.

Lobo II would expand EnLink's existing Lobo system in the Delaware, which it acquired from Matador Resources Co. last fall (see Shale DailySept. 16, 2015). Once completed, the facility would have 155 MMcf/d of processing capacity.

"The joint venture creates an opportunity for EnLink to build a strategic partnership with NGP, which has robust producer relationships in the liquids-rich Delaware Basin," EnLink CEO Barry E. Davis said.

To form the JV, EnLink contributed $230 million of existing Delaware assets and committed an additional $285 million to fund potential future development projects and potential acquisitions. NGP committed an aggregate $400 million, including an initial contribution of $115 million to reimburse EnLink for capital spent to date on existing assets and ongoing projects.

As part of the agreement, NGP granted EnLink graded call rights beginning in 2021 to acquire increasing portions of NGP's interest in the JV. The JV is governed by a board of directors, which initially is comprised of two people designated by each partner. EnLink is serving as the managing member to handle day-to-day construction and operation of the assets.

"When coupled with EnLink's proven experienced management team and our conviction in the inherent long-term value of the Delaware Basin, this transaction creates the foundation for a successful long-term strategic partnership," said NGP Managing Partner Tony Weber.

The deal may signal that Devon Energy Corp. plans to boost its Delaware operations as it retains ownership of the EnLink partnership. Two years ago the producer contributed most of its U.S. midstream assets to help form EnLink, and it has continued to direct a big chunk of its capital spending to the Delaware (see Shale DailyJuly 14).

During 1Q2016, Devon's Delaware natural gas production increased to 84 MMcf/d from 66 MMcf/d from 2Q2015, with oil output rising to 38,000 b/d from 33,000 b/d, and liquids at 12,000 b/d from 8,000 b/d (see Shale DailyMay 4).

Devon and EnLink each report second quarter results on Wednesday.

EnLink now has 10,000 miles of gathering and transportation pipelines, 19 processing plants with 3.9 Bcf/d of processing capacity and seven fractionators with 284,000 b/d of capacity, as well as barge and rail terminals.

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