Permian midstream development activity has been happening at a rapid pace over the past few years, and we’ve featured many of those projects in the RBN blogosphere. One of the most aggressive players has been Salt Creek Midstream, which is in the midst of a big Permian buildout focusing on natural gas, crude oil, natural gas liquids and even produced water. Salt Creek isn’t only developing local midstream infrastructure; it’s also at work on long-haul solutions that will enable Permian producers to access markets along the Texas Gulf Coast — a wellhead-to-water strategy, you might call it. Helping Permian producers meet their needs to take away all three hydrocarbons plus produced water with integrated transport and pricing options is the key to Salt Creek’s effort. Today, we dive into the details of the company’s expansive Permian infrastructure development plan.

Salt Creek Midstream (SCM) is a joint venture formed by Ares Management and ARM Energy in mid-2017. Following an initial capital commitment from Ares, SCM soon became a minority partner in EPIC Midstream’s NGL Pipeline from the Permian to the Corpus Christi area (see Flick of the Switch for more on that pipe). Later in 2017, SCM contracted capacity on Kinder Morgan’s El Paso Natural Gas Pipeline (EPNG) Line 1600, which allowed the company to move gas volumes from the Permian’s Delaware Basin to western markets and the Waha Hub (see It Was Good Living With You, (W)aha for more on this important Permian gas hub). Also in late 2017, SCM made another investment in capacity, this time taking out a significant tranche of long-haul transport space on the EPIC Crude Pipeline (again, see Flick of the Switch). Further, the company had been signing producers to acreage commitments for gas gathering; it finished 2017 with five producers and over 175,000 acres dedicated to future SCM gathering and processing projects. After that auspicious start, Salt Creek has picked up the pace of commercial activity over the last 18 months, and now has more than 900,000 acres dedicated across its natural gas, crude oil and produced-water systems. Next, we break down the components of this massive buildout and Salt Creek’s strategy.

Natural Gas

Salt Creek has built out gas gathering systems (red lines in Figure 1) in Eddy and Lea counties in New Mexico, and Culberson, Reeves, Winkler, Ward and Pecos counties on the Texas side. The 325-mile network, about half of which is already in service, has pipe ranging from 8 to 30 inches in diameter and the capacity to transport up to 1.2 Bcf/d of rich gas to Salt Creek’s cryogenic processing plants, located near Pecos, TX, in Reeves County. There, the 200-MMcf/d Pecos I plant is currently in service; it will be joined in a few weeks by an additional cryogenic processing plant: the 200-MMcf/d Pecos II. Salt Creek is prepared to make a final investment decision (FID) on a third processing plant in the near term and has adequate site space to accommodate a total of up to 1.2 Bcf/d of cryogenic processing capacity.

Residue gas from the SCM plants — that is, pipeline-quality natural gas — can currently flow to either ONEOK’s Roadrunner Pipeline or Kinder’s EPNG. A future interconnect will provide a link to Energy Transfer’s Comanche Trail pipeline. All told, SCM’s gas system offers significant market access to takeaway pipelines at the Waha Hub and firm sales to West Coast, Mexico and LNG demand centers. SCM has almost 400,000 acres from 17 producers committed to its gas gathering behemoth.

Crude Oil

Crude oil became a focus for Salt Creek as Gulf Coast differentials blew out and producers began asking for another solution in the Delaware Basin. In response, the company contracted 150 Mb/d of firm capacity on the EPIC Crude Pipeline, as mentioned above. EPIC Crude (dashed yellow line in Figure 1), which is also backed by Ares, will be capable of providing 590 Mb/d of oil takeaway from the Permian to Corpus Christi when it begins full operation in early 2020. Note that the pipeline will begin providing interim service (400 Mb/d) later this summer, utilizing a 24-inch-diameter long-haul pipeline from the Permian to Corpus, which was originally intended for the EPIC NGL line (solid and dashed blue lines). Early next year, the project’s 30-inch-diameter crude pipeline will be completed to the coast, at which time the 24-inch line will shift back to NGL service.

EPIC Crude is one of three long-haul pipelines extending from the Permian to the Texas Gulf Coast that will start over the next few months (see our Hard Hat And A Hammer series for the others). EPIC Crude will have interconnects with Salt Creek’s crude oil gathering system (lime-green lines in Figure 1). That network, which currently has more than 400,000 acres dedicated to it by 16 producers, is expected to be completed later this year and will consist of two regional sub-systems that traverse the Texas-New Mexico border. The western oil gathering system has 12- and 16-inch-diameter lines that span Eddy County (NM) and Culberson and Reeves counties (TX). The gathering system moves its volumes to Orla, TX, in Reeves County, where SCM is building crude storage and, in the future, will have an interconnect with EPIC Crude and with Plains All American’s pipeline system, providing access to the major Permian crude hubs and long-haul takeaway pipes.

SCM’s oil gathering system in the eastern Delaware Basin extends from Lea County (NM) to near Wink in Winkler County, TX. Similar to the western gathering assets, the pipelines in this area telescope up from 12-inch lines in New Mexico to a 16-inch line feeding crude oil to storage that SCM is building at Wink. While EPIC Crude will provide another connection to the SCM system at Wink, access to the Midland Hub is currently afforded by an interconnect at Wink with Andeavor Logistics’ crude oil system (see Part 9 of our Permian crude gathering series). Salt Creek also entered into a joint venture (JV) with Noble Midstream (NBLX) to build a crude oil gathering and transportation system from Pecos County, TX, to Wink (dark-green line in Figure 1). This project will move barrels to the Wink hub, where SCM and NBLX are capacity holders into the EPIC Crude pipeline. The JV, named Delaware Crossing, LLC (DCX), is being designed to transport up to 200 Mb/d for Noble’s upstream affiliate and SCM’s customers. In total, DCX has received commitments totaling over 200,000 acres.

Bundling together field gathering, storage and long-haul transportation allows SCM to move crude volumes all the way from the Permian to Corpus Christi. SCM didn’t stop there though; in late 2018, it inked a deal with a large international shipping and trading partner that allows SCM to access export-dock capacity in Corpus Christi. Thus, SCM’s wellhead-to-water strategy is complete.

Natural Gas Liquids

As part of a 2018 JV with Apache Corp., SCM built an NGL header system (hot-pink line in Figure 1) that extends from Apache’s Alpine High field to Waha, passing SCM’s Pecos gas processing complex along the way. The 445-Mb/d header system provides interconnects to the EPIC NGL pipeline, as well as to Enterprise Products Partners’ new Shin Oak Pipeline from Orla to the fractionation hub in Mont Belvieu, TX. The header also has the ability to make future interconnects with Targa Resources’ Grand Prix and Energy Transfer’s Lone Star NGL pipelines, with minimal capital investment. The NGL header allows SCM to offer producer customers access to various downstream NGL connections and markets.

As we noted earlier, SCM is a minority equity owner in the EPIC NGL Pipeline and has struck a marketing agreement with a major capacity owner on the line to provide access all the way through to EPIC’s fractionation plants in the Corpus Christi area. The EPIC NGL line will enter full service early next year, but is currently operational to Reagan County, TX. This allows the pipeline to access long-haul NGL pipelines in the area; it currently interconnects with the Phillips 66-operated EZ Line, which is owned by CP Chem.

Produced Water

Finally, SCM is part of the wave of midstream companies handling produced water for its customers. While gathering and disposing of the water that emerges from the lease with crude and associated gas represents only about 10% of Salt Creek’s EBITDA (earnings before interest, taxes, depreciation and amortization), the company already has over 160,000 acres committed at present. SCM is expanding saltwater disposal wells (SWDs) in Winkler County (TX) and working on building out gathering and disposal capacity in Pecos County (TX), where water cuts (the ratio of produced water to crude) are generally higher than in the areas to the north.

We’ve written about more than a few Delaware Basin midstream companies over the last few months. The Salt Creek system is noteworthy given its large footprint across the Delaware, its ability to handle all three hydrocarbons and produced water, and the downstream optionality it provides for gas, crude and NGLs. Starting from scratch less than two years ago, the SCM system now boasts almost one million acres in producer dedications, is integrated with numerous takeaway pipelines across all three commodities and provides much-needed access to the Corpus Christi NGL and crude export markets.