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Trio to Construct Crude Oil Pipeline to Cushing

To deal with growing midstream activity in western Oklahoma and the emerging Mississippi Lime, SemGroup Corp., Gavilon Midstream Energy LLC and an affiliate of Chesapeake Energy Corp. plan to construct a 210-mile crude oil pipeline to carry supplies to a 1 million bbl storage facility in Cushing, OK.

The pipeline would consist of two laterals in Oklahoma. One lateral would begin near Alva, in Woods County, and the other near Arnett, in Ellis County, which together would intersect near Cleo Springs in Major County, OK, where the pipeline would increase in diameter and continue east to storage at Cushing.

Initial capacity would be 140,000 b/d. Once more compression horsepower is added, maximum operating capacity is expected to be 180,000 b/d. Construction is scheduled to begin in July; in service is planned for early in the second half of 2013.

"This project will happen because of a spirit of cooperation among the three companies," which each have "unique capabilities," said SemGroup CEO Norm Szydlowski. "Together we are leveraging these capabilities to solve a significant and growing crude oil transportation constraint in the state of Oklahoma."

SemGroup, he said, "brings the capability to design, construct and operate crude oil pipeline and storage; Gavilon has the financial strength and risk management capabilities to clear the barrels in the Cushing market; and Chesapeake is stepping up with a volume commitment from its vast acreage holdings and high-quality reserves to anchor the project. The formation of this new joint venture increases SemGroup's presence in an area with an increasing demand for midstream service we can provide."

Chesapeake Senior Vice President Mike Stice said high crude oil prices offer "attractive economics for producers in these plays." The new pipeline "will further improve the upstream economics of Chesapeake...by providing a lower-cost transportation alternative to move production from the field to downstream markets at the Cushing interchange and will provide the same economic advantage to other producers in these drilling plays."

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