Concho Resources, Frontier Midstream reteam to build Beta Crude Connector

Midland Reporter-Telegram, April 18, 2019

Crude connections the sequel is in the works, according to Concho Resources and Frontier Midstream Solutions IV LLC. The two, which formed a joint venture to build and operate the Alpha Crude Connector system in the northern Delaware Basin before selling it to Plains All-American in 2017, have announced plans to build and operate the Beta Crude Connector system in the northern Midland Basin.

Concho is supporting the project with a long-term acreage dedication agreement, and Concho officials told the Reporter-Telegram the joint venture gives the company more optionality and more delivery points for its northern Midland Basin production.

“We are excited to partner again with Frontier in the development of the Beta Crude Connector,” Jack Harper, Concho president, said in a statement announcing the project. “Through the joint venture, we will leverage Frontier’s midstream expertise and enhance the value of our high-quality footprint in the Midland Basin with a reliable, cost-efficient gathering and transportation solution. Importantly, this is a compelling investment opportunity that we can make with no changes to our capital plans.”

Chris Guglielmo, Director of Business Development at Frontier, told the Reporter-Telegram by email that the opportunity to reteam with Concho was a compelling part of the project.

“Concho is a homegrown Permian group, just like much of our company. We had a great partnership with Concho with the Alpha Crude Connector (ACC) we developed together. We successfully supported their highly active exploration and production operations with the ACC and Concho was supportive of our midstream operations, which seemed to grow without ceasing.

“Based on our experience with the ACC, we know that Concho is a great joint venture partner.,” he said. “So, when this opportunity came about, we knew if we moved forward together, aligned as we were with the ACC, the operating relationship would be good. Alignment is critical to us as we form a joint venture or partnership.”

Guglielmo said that since the sale of ACC, Concho had grown significantly with its acquisition of RSP Permian last year. “We look forward to what that scale and size may accomplish,” he said.

Both the Delaware and Midland basins are exciting places to be, and the dynamics created by the unprecedented activity in both basins are exciting to anticipate, Gugliemo said. But both are different, he said.

“ACC was a large system built to support a tremendous geography of dedicated acreage and network of production plans and volumes,” Guglielmo said. “I would say the knowledge of the ACC area of the Delaware was less mature than it is today, so the exploration was significant. This led to the necessity of having a system that was 500 miles in length by the time we sold it to Plains.

“This Midland project, the Beta Crude Connector, is an acreage position that is significantly blocked up. This concentration will allow us to be very efficient with our system design and operations, and Beta Crude Connector’s proximity to downstream markets is even closer than it was with ACC,” he said. “Further, the Midland Basin is a world-class resource and the science of the resource is well known. So, we are looking forward to what BCC can do to assist with the production in the area.”

Beta Crude Connector will be a gathering and transportation system consisting of an approximately 100-mile gathering system, 250,000 barrels of crude oil storage facilities and truck terminals. Guglielmo said the storage facilities and truck terminals initially will be located near the Midland-Martin county lines, and additional storage tanks will be located throughout Midland and Martin counties. Throughout Midland, Martin and Andrews counties, he estimated there will be more than 200 people working on various components of the construction.

Initially, the pipeline system will have the capacity to deliver 150,000 barrels per day of crude to multiple delivery points, accessing local refineries and connecting to several downstream pipelines. An open season is planned for later this month, after which construction will begin. Initial flows are expected to begin by mid-year.

Plans are to file with the Federal Energy Regulatory Commission for Beta Crude Carrier to operate as a common carrier pipeline and solicit interest from other producers and marketers for capacity on the system.

“Historically, crude flowed from Midland to Cushing, then from Cushing to the Gulf Coast to be refined,” Guglielmo said. “Some went to the Midwest and some stayed in the Permian Basin. Crude flows from lowest to highest price, so prices in the Gulf Coast were traditionally higher than Cushing, and Cushing was higher than Permian. The path from Cushing to the Gulf Coast recently filled to the brim, caused by continued flow into Cushing from the Permian and more growth from the north, pushing the differential on that path to a level that exceeds the pipeline tariffs.

“But new Permian pipes are coming to the rescue to support the continued production and allow for additional transport directly to the Gulf Coast from the Permian,” he said. “The Permian Basin will transition from a shortage of long-haul takeaway capacity to an abundance of options by mid-2020.”