Targa bolsters its Permian footprint with acquisition of Lucid eyeing future oil and gas boom

Strong points

Targa’s Permian Delaware gas processing capacity to double

New gas delivery capacity should enable oil and gas growth

U.S. midstream operator Targa Resources will expand its natural gas gathering and processing assets in New Mexico with the acquisition of Lucid Energy Group, after a recently announced slate of take-home projects paved the way for a boom in gas and oil production associated with the Permian.

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Lucid, the largest private gas processor in the Permian, brings about 1.4 Bcf/d of gas processing capacity to Eddy and Lea counties in New Mexico, and 1,050 miles of pipeline.

Targa’s existing Permian Delaware system includes approximately 6,100 miles of gas gathering pipelines and eight 1.29 Bcf/d capacity processing plants in west Texas and southeastern New Mexico. With a view to future growth, Targa announced in February the construction of a new 275 MMcf/d cryogenic gas processing plant, called the Midway plant, which will come into service in the third quarter of 2023.

The acquisition, which has been valued at $3.55 billion in cash, is expected to close by the third quarter of 2022.

Prolific Permian Basin

Targa’s expansion plans in Permian Delaware are part of a wave of renewed interest in the prolific basin as multi-year high prices for crude oil, gas and natural gas liquids attract additional investment that is expected to result in record production volumes.

Already, the pool’s rig count was 336 as of June 16, according to data from S&P Global Commodity Insights, up 84 rigs from the same period a year ago. The additional rigs helped boost oil and gas production significantly, according to data from S&P Global.

Gas production averaged 14.3 Bcf/d as of June 16, up 10% from the first six months of 2021, putting the basin on track for its highest annual production on record. S&P Global estimated implied Permian crude oil production at 5,521 mb/d as of June 15, up 833 mb/d from a year ago.

Expanded takeout capacity

In previous production booms, gas volumes associated with the Permian exceeded carrying capacity, crushing basin spot gas prices and limiting oil and gas production. Since the last major production increase in early 2020, the Texas Railroad Commission has issued tougher rules to combat flaring, making capacity to transport gas out of the basin an even more critical priority for Permian producers. .

However, a recent flurry of take-out gas expansion announcements has eased some of the fear that history will repeat itself, paving the way for future growth over the next few years.

More recently, a coalition including WhiteWater, EnLink Midstream, Devon Energy Corp. and MPLX LP has made a final investment decision on the Matterhorn Express Pipeline, which will move up to 2.5 Bcf/d of gas from Waha in West Texas to the Katy region near Houston. The greenfield pipeline is expected to enter service in the third quarter of 2024.

Earlier in May, the intrastate Whistler Pipeline also hit FID to increase to 2.5 Bcf/d from 2 Bcf/d. The move follows two proposals for brownfield expansions on other intrastate Gulf Coast Express and Permian Highway Pipelines, both of which deliver gas from the Permian to the U.S. Gulf Coast. If these two expansion projects go ahead as proposed, up to 1.2 Bcf/d of new capacity will come online by the end of 2023.

About Keith Tatum

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