DCP Midstream Eyes Eagle Ford Opportunities

May 2011, Vol. 238 No. 5

DCP Midstream, LLC, headquartered in Denver, leads the midstream segment as one of the top three gatherers and processors of natural gas in the U.S. and as the largest natural gas liquids producer and one of the largest NGL marketers in the nation.

It is a 50-50 joint venture between Spectra Energy and ConocoPhillips. DCP Midstream owns and operates the General Partnership of DCP Midstream Partners, LP, a master limited partnership created in December 2005.

Though the company operates 61 plants, 10 fractionating sites and some 60,000 miles of gathering and transmission pipeline, it is the burgeoning Eagle Ford shale play in South Texas that is drawing much of the company’s attention these days, according to Richard A. Cargile, president , Southern Business Unit, for DCP Midstream.

To gain a perspective on DCP Midstream’s size, the company gathers and/or transports an average of about 7.1 trillion British thermal units per day of natural gas; produces an average of 360,000 barrels per day of NGLs; and markets and trades an average of over 480,000 barrels per day of NGLs.

P&GJ: To date, how much of your activity is focused on shale and what strategies are you pursuing in developing your shale plays?

Cargile: We are pleased with our broad supply base which is well-situated to participate in both shale and unconventional opportunities. We have a footprint in 18 states and our scope sets us up well to drive growth across geographies and business lines. DCP has an asset base in proximity to many of the shale and unconventional plays including Eagle Ford, Niobrara/Codell, Wolfberry, Avalon, Woodford Cana, Granite Wash, Haynesville, Barnett, Antrim, and Piceance/Mesaverde supply basins, and we are pursuing viable opportunities in the Marcellus as well.

Our strategy is to achieve critical mass in each region that we operate to achieve economies of scale and enhance operating reliability and flexibility. We accomplish this through leveraging our existing footprint with step-outs and bolt-ons and integrating existing systems to establish “super systems” and then complementing with new facilities to increase processing and takeaway capacities.

P&GJ: What makes Eagle Ford stand out as a shale play and how does it fit with your overall portfolio? How does it compare crude oil vs. natural gas prospects?

Cargile: A strong competitive advantage for DCP in the Eagle Ford is that we have already achieved critical mass in the region prior to producers beginning to drill due to previous acquisitions and mergers. It is almost incomprehensible for another entity to duplicate our existing infrastructure there. Our focus is similar to other regions where we optimize our existing assets, and essentially are able to plumb together our plants to create a “super system” offering operational flexibility and access to multiple markets.

E&P producers have shifted their focus from the drier gas shale plays to the oiler shale plays due to crude prices. DCP is best at gathering and processing liquid rich gas and has remained the largest NGL producer in the nation for years. DCP’s infrastructure is well-positioned in South Texas primarily along the condensate and oil window of the Eagle Ford shale play, although we also have capabilities of gathering some of the development from the dry gas window as well.

P&GJ: What is the prospect for pipeline development in the Eagle Ford and what new infrastructure does DCP have planned?

Cargile: We have five plants that we are presently plumbing together to create an integrated “super system”. We are also progressing with a new 200 MMcf/d processing plant, called the Eagle Plant near Edna, TX. Overall, that brings our total operating capacity in the area to 1 Bcf/d. We have fractionators at Wilcox, La Gloria, and the Gulf Plains plants but also have plans to construct a major NGL pipeline to feed various Gulf Coast fractionators.

In total, our planned investment is almost $500 million to construct our sixth plant, interconnecting pipelines, and the additional gas gathering and NGL infrastructure.

P&GJ: Overall in North America, do you see the new market dynamics dictating where future pipeline development and expansion is most likely? Do you think the number of planned pipelines miles is sufficient to handle near-term production from the various plays?

Cargile: We follow the drill bit and currently the drill bit is going to the oilier plays. Again, we have a presence in most of these plays. We are always communicating closely with producers so we can pace our spending for infrastructure support just in time. It’s always important to be disciplined in the investments we make. New gathering and processing infrastructure will be needed to serve the liquids-rich shale development, but new oil and gas transmission infrastructure will also be needed for takeaway capacity.

P&GJ: How long do you expect this play to last?

Cargile: There is lots of growth potential with the Eagle Ford play. Much depends on the spacing of the drilling. Conservatively, it could peak in eight years, and with tighter acre spacing, it could double the production. It’s important for us to pace our spending consistent with where we see the producers’ development.

P&GJ: Do you feel there is a lack of NGL infrastructure for transport and fractionation? If so, what do you perceive as the key for continued NGL development?

Cargile: We just completed an open season on a 750-mile proposed NGL pipeline from the Permian to the Gulf Coast. There is tremendous need for NGL takeaway. There are many solutions we can pursue such as being creative in partnering with others. Development is always contingent upon producer-demand and commitment. There have been several NGL fractionation expansions recently announced. The future challenge will be NGL pipeline infrastructure to feed these expansions.

P&GJ: Is today’s low-price environment for natural gas affecting your planning, and are there any ways you can leverage against that?

Cargile: It is driving development in oilier windows and therefore, an emphasis on NGL infrastructure, fractionation, and processing in those windows. We have a presence already in those areas, so we are well-positioned.

P&GJ: How has your asset mix changed in the past few years and do you foresee further changes coming up?

Cargile: We have stepped out into new basins such as the Antrim in Michigan, the Woodford/Cana in the MidContinent, the Barnett in Texas, the Piceance in Colorado, and the Avalon in the Permian Basin. The Permian continues to be a solid basin, and we are seeing the re-invention of some of our basins such as the DJ in the Rockies. DCP will continue to focus on liquid-rich gas gathering and processing.

P&GJ: Lastly, do you feel the shale play has been a “game changer” in the country’s energy landscape, and what do you see its ultimate potential?

Cargile: It represents a shift in the supply base and the awareness that there are reserves of natural gas that can be tapped with new technology. With the shifting of the supply base, there is a need for midstream infrastructure, and it’s always efficient to be able to link to existing infrastructure where you can. In our case, we like how our current footprint lines up with the existing and emerging shale plays.

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