Sanchez Midstream Partners LP (SNMP) on Wednesday announced it has executed a series of agreements with Targa Resources Corp. that put their newly formed joint venture (JV) in a position to grow their footprint in the Eagle Ford Shale while exercising the capital discipline investors have come to expect from the oil and gas industry.
Under the deals, each company has merged its respective 50% interests in the entities that own the 45-mile high pressure Carnero natural gas gathering pipeline on the companies’ Catarina assets in Dimmit County and the Raptor gas processing facility in La Salle County, both located in South Texas. The newly formed partnership — called the Carnero JV — owns the full capacity of the Carnero line, which has a design limit (without compression) of 400 MMcf/d.
The Carnero JV has also acquired Targa’s 200 MMcf/d Silver Oak II gas processing plant in Bee County, which expands the processing capacity of the partnership to 460 MMcf/d from 260 MMcf/d. The Carnero JV also includes new dedication of over 315,000 gross Comanche area acres in the western Eagle Ford, which is operated by Sanchez Energy under a new long-term firm gas gathering and processing agreement.
The agreement with Sanchez Energy, which has been approved by all unaffiliated Comanche working interest partners, establishes commercial terms for the gathering of gas on the Carnero gathering line and processing at the Raptor gas processing facility and Silver Oak II. Prior to execution of the agreement, Comanche volumes were gathered and processed on an interruptible basis, with the processing capabilities of the JVs limited by the capacity of the Raptor gas processing facility.
Since SNMP transitioned into a midstream master limited partnership in 2017, management has “worked diligently over the last several months to expand the partnership’s opportunity set in South Texas,” said Gerry Willinger, CEO of the general partner of SNMP.
“The Carnero JV enhances our midstream strategy, secures and expands our third-party volumes, and is expected to provide additional stable, fee-based cash flow to the partnership over time,” Willinger said. The structure of the transaction “greatly simplifies” SNMP’s previous JVs with Targa, which “facilitates greater operating efficiencies and provides a solid platform for the continuing growth of the Carnero JV in South Texas.”
SNMP does not currently anticipate that the newly formed JV will result in a material impact on its full year 2018 forecast released on May 10. SNMP projects its wholly owned Western Catarina Midstream volumes will range between 170-180 MMcf/d of natural gas and between 13,100-13,900 b/d of oil, with combined Catarina and Comanche volumes on the non-operated Carnero gathering line and Raptor gas processing facility estimated at 255 MMcf/d. The Seco Pipeline, which is also wholly owned by SNMP, is expected to flow between 80-90 MMcf/d of dry gas from its interconnection at the Raptor gas processing facility to markets in South Texas.
While SNMP is keeping its 2018 forecasts intact, management said that by adding Silver Oak II and the additional capacity of the Carnero Gathering Line to the Carnero JV, its South Texas midstream assets are “strategically positioned to capture the increase in volumes from the significant development activity underway in the western Eagle Ford without spending any incremental development dollars.
“As we anticipate increasing volumes through our expanded system in 2018 and the years to come, we have preemptively put ourselves in a position to continue to grow the partnership while being disciplined with capital. Accordingly, we see the new, expanded joint venture as a key step in positioning the partnership for continued growth in South Texas.”
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