New Infrastructure Means More Value for Minerals

Gas gathering, compression, and transportation; details, details, the devil is always in the capital intensive details.  Oil exploration companies face a serious dilemma:  trapped high pressure natural gas pushes crude oil through the porous underground sedimentary sands to the well bore, crude production cannot work without reservoir pressure supplied by the supply of natural gas, but, what to do with the natural gas?  In the past, natural gas was an enigma.

In the early days of the oil and gas industry there was no infrastructure to transport the natural gas, there was no market for the natural gas, and there was no idea on what to do with the natural gas.  High pressure gas was viewed as the devilish cause of oil well blow outs.  Consequently, it was vented to the open air and burned as part of the crude oil production method.  Oil men knew natural gas would burn, but what they didn’t know was how to transport it and what to do with it once it was delivered.

In the more remote areas of Oklahoma, there are opportunities waiting for the intelligent application of capital, imagination and determination.  There is a tremendous supply of natural gas in North Western Oklahoma.  South East of Alva, and North East of Woodward, in a small town known as Carmen, Oklahoma, business men have put their money down, betting on natural gas.  Surrounded by the Mississippi Lime and Cana Woodford Shale plays in southwestern Alfalfa County, Carmen will host the building of a new Cryogenic Natural Gas Plant.

Natural-gas processing is a complex industrial process designed to clean raw natural gas by separating impurities and various non-methane hydrocarbons and fluids to produce what is known as pipeline quality dry natural gas.  (Wikipedia).  A cryogenic plant uses low temperature distillation sometimes referred to as reverse distillation.  Instead of heating a chemical to separate the lighter elements, the chemical is chilled to separate the heavier elements or chemicals comprising the mixture known as raw natural gas.  Thus, cryogenic plants separate natural gas from: moisture, helium, propane, butane, gas condensate (gasoline), and sulfur; chemicals found in raw natural gas.

Today, the venting and burning of natural gas would be like burning up money.  The intentional wasting of precious natural resources that can be used to power dynamos, cars, heat homes, cook thousands of meals and provide a ready source of carbon for industry shocks the conscience.  It is commonly understood that the market for natural gas is unquenchable.  Thus, business rushes to meet the demand.

How does one transport a highly in-compressible gas to market without a pipeline and what are the problems associated with a pipeline or pipeline system?  The answer is provided by Ray Tuttle in his interesting article:

Caballo building gas processing plant near Carmen

The Journal Record, D. Ray Tuttle
Posted: 08:51 PM Tuesday, September 18, 2012TULSA – Producers cannot drill the wells fast enough in northern Oklahoma.

Caballo Energy LLC announced on Tuesday the construction of a 60-million-cubic-feet-per-day cryogenic gas processing plant near Carmen.

The plant, expected to begin service by April, will bring the total daily capacity for the Tulsa-based natural gas processing company in the region to nearly 100 million cubic feet per day, said Bob Firth, Caballo president and CEO.

“The area is just booming right now. Wells are being drilled faster than the midstream can keep up,” Firth said on Tuesday. “Midstream” is one theOil three major stages of oil and natural gas operations. Midstream refers to processing, storing, transportation and marketing of oil and gas.

And there is no sign of the drilling letting up, Firth said.

The Carmen plant will sit on 160 acres and Firth indicated that there is plenty of room for additional plants, though he declined to be specific.

“In talking to our producers we felt comfortable investing the dollars for a 60-million-cubic-feet-per-day plant,” Firth said.

“Even with the price of natural gas being as low as it is, this is the most economical play in the country,” Firth said. “This” is the intersection of the Mississippi Lime and Cana Woodford Shale plays in southwestern Alfalfa County. The region is dominated by wells that are producing crude oil, natural gas liquids and natural gas.

“The wells are shallow and liquids-rich,” Firth said. “Well costs are between $3 million to $4 million per well.”

The plant will have two or three employees to start, Firth said.

“We will use a lot of technology to run the plant and this is just the first phase,” Firth said.

When producers first looked at producing the Mississippi Lime Shale, they expected mostly crude and a little gas, Firth said.

“But producers like Eagle Energy, Chesapeake and SandRidge have been surprised by the amount of natural gas liquids associated with the crude,” Firth said.

The drilling has been so successful, that the midstream pipeline infrastructure is lagging way behind the producers, Firth said.

“Producers have to throttle back,” Firth said. “They have to wait for facilities to be built.”

The result is a tremendous opportunity for companies like Caballo, Firth said.

“There are a lot of plants and a lot of pipe that will be built here in the next five to 10 years to take out all this gas,” Firth said.

Generally, wells are spaced one for every 640 acres. But this region is seeing one well for every 160 acres. Current processing capacity in the region is 500 million cubic feet per day, Firth said. It is estimated that the capacity could grow to 2.5 billion cubic feet per day in the next 10 to 20 years – and just on the Oklahoma side of the Kansas-Oklahoma border. The field is thought to extend north through Kansas and into Colorado.

“There is not enough data to define it yet,” Firth said.

The Carmen plant is part of Caballo’s Eagle Chief system, which includes more than 600 miles of natural gas gathering pipelines and compression facilities in Alfalfa, Blaine, Garfield, Major and Woods counties.

Caballo delivers processed gas to Oneok Gas and Transportation and Panhandle Eastern Pipe Line.

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