The Granite Wash has been a trusty standby for the oil and gas industry since the days when flappers were fashionable. For nearly a century, it’s been a spot favored for its extensive geology, strong liquids content and consistently heavy drilling activity.

Today, thanks largely to horizontal drilling technologies, the tight-sands play remains very much alive. Indeed, midstream companies continue to pump life into the region through heavy investments and plentiful infrastructure build-out.

Extending throughout western Oklahoma and the northern Texas Panhandle, the Granite Wash is a stacked formation, consisting of numerous layers of sandstones. But of course, just as flappers are no longer considered fashionable, trends within the Granite Wash have also evolved. The midstream is focusing more heavily on natural gas liquids (NGLs) and gas condensates, which is resulting in an upswing in expansions and new projects. Many of those projects are set to come online as the year unfolds.

“The Texas Panhandle is an area that is still very active for production companies due to the high liquids content that is produced with the natural gas,” Jim Leathers, Superior Pipeline Co.’s director of gas supply, tells Midstream Business. “There are multiple zones within the Granite Wash that are economic for producers to develop, and we see many years of continued development going forward.”

Superior is doing a lot to help those producers. Its Hemphill-Mendota gathering and processing facility includes four turbo expanders and a refrigerated processing plant, as well as central compression and dehydration facilities. The plant also boasts a low-pressure, nearly 200-mile gathering system in Texas’s Hemphill and Roberts counties. The Hemphill facility has a processing capacity of 160 million cubic feet (MMcf ) per day and produces about 12,000 barrels (bbl.) of NGLs per day.

Superior has grown its presence in the area during the past five years through processing capacity expansions, added compression facilities and new gathering lines. It has also added two residue outlets and upsized its NGL delivery point.

Though Superior doesn’t have processing facilities on the Oklahoma side of the Granite Wash, Leathers says the play has plenty to offer there as well.

“The Oklahoma side of the Granite Wash play continues to be very active and should continue to provide favorable economics to producers and midstream companies at current prices,” he says. “For those companies with midstream assets in the Oklahoma portion of the play, it is extremely competitive due to the well-developed infrastructure.”

There’s no question that growing production in the Granite Wash has been met with plenty of midstream growth. Some analysts have said that production in the play is expected to continue climbing throughout the decade. Last year, GlobalData released a report detailing some promising statistics for the area. According to the report, titled Granite Wash Shale in the U.S. — Oil Shale Market Analysis and Forecasts to 2020, the play recorded a 33% production increase between 2009 and 2010. Crude oil rose from 1.37 million barrels of oil equivalent (MMboe) in 2009 to 1.54 MMboe in 2010, the report noted. Condensates, meanwhile, grew from 2.69 MMboe to 3.86 MMboe during the same time frame.

In its report, GlobalData said it anticipates gross production from Granite Wash’s Texas portion to reach 42.8 MMboe by year-end 2015. In 2020, production is expected to reach 73.6 MMboe before stabilizing, the report adds. Consolidation could be the name of the game in coming years, says Leathers.

“Going forward, the Texas Panhandle will continue to be competitive in the midstream sector, and we have seen a large asset consolidation with the Eagle Rock acquisition of BP's Texas Panhandle midstream assets,” he says. “I think that additional consolidation opportunities may occur, but it should be somewhat limited.”

Tremendous appeal

The Granite Wash is Eagle Rock Energy Partners LP’s core area in the midstream business. The company has tremendous scale across the Texas Panhandle, which covers the Granite Wash as well as a number of surrounding plays. Eagle Rock currently has about 6,500 miles of pipeline in the area, alongside nine high-efficiency processing plants that combined boast more than 460 MMcf per day of processing capacity.

Those systems were derived from a massive legacy system Eagle Rock has owned since the company went public in 2006. Eagle Rock has since doubled the size of that system with its acquisition of BP America Production Co.’s area assets.

Last August, Eagle Rock bought BP’s Sunray and Hemphill processing plants and the associated 2,500-mile gathering system serving the Texas Panhandle for $227.5 million. As well, the companies entered into a 20-year gas gathering and processing agreement that will see Eagle Rock gather and process BP’s natural gas production from the existing connected wells and from certain new wells drilled near the system by BP or its partners.

The BP acquisition helped Eagle Rock beef up its already- extensive gathering footprint, as well as its high-efficiency processing infrastructure. The deal nearly doubled the scale and reach of its gathering system while providing almost 220 MMcf per day of additional cryogenic processing capacity. Eagle Rock is continuing to build its regional presence. Last year, it installed its 60 MMcf per day Woodall plant and expected its newly constructed 60 MMcf-per-day Wheeler plant to come online in May.

Jeffrey Wood, Eagle Rock’s senior vice president and chief financial officer, says the company was drawn to the region for a variety of reasons. This includes the area’s high level of current drilling activity, favorable geology and the opportunity to provide high-value midstream services such as treating and processing.

The play sits in a prolific region that is expected to host drilling activities for years due to its stacked pay zones and multiple drilling horizons, most of which produce gas streams with a high content of NGLs.

“The Granite Wash really has all of the key characteristics we look for,” Wood tells Midstream Business. “The Granite Wash has been one of the most prolific plays in North America and one that producers have targeted for years.”

The play’s bright future has been matched with a productive past, which has worked to the advantage of companies such as Eagle Rock. The company has partnered with producers—both large and small—who understand the area and who have maintained consistent drilling plans.

“We feel very comfortable with the geology, as opposed to maybe a more emerging shale play with less production history,” says Wood.

Also working to its advantage is the fact that Texas is an oil and gas friendly state, which provides numerous advantages to companies operating in the area. And from a topographical perspective, companies in the Granite Wash don’t have to worry about laying pipe in mountainous regions. Instead they’re fortunate to be operating in an area where it is comparatively easy to install underground infrastructure.

And it appears things are only getting better, at least if producer activity is any indication. Producers are now expanding their drilling activity in shallower zones and neighboring formations. The area has been characterized by a stacking of prolific formations, including the Tonkawa, Hogshooter and Cleveland. This gives Eagle Rock the potential to increase its production beyond the Granite Wash as production moves from one zone to another, without having to significantly expand its midstream infrastructure, says Wood.

“The density of the producing formations benefits us as a midstream company,” he says. “We’re getting increased production from the very locations we’re already serving. It really helps keep our operating and capital costs lower and helps to feed the system.”

Overcoming challenges

Of course, with opportunities come challenges, which are virtually inevitable in the midstream business. In the Granite Wash, there’s plenty of competition among midstream providers, forcing companies to up their game. Fortunately for Eagle Rock, it has one of the larger systems, and Wood says it has made great strides in increasing the scale and quality of its producing assets.

“I think we’re very well positioned competitively, but we never underestimate the quality and number of the other guys who are out there looking to provide similar services,” says Wood.

To keep its competitive advantage, Eagle Rock is constantly working to ensure gas is moving and that it is extracting as much of the valuable commodities within gas that it can. After all, Wood says, keeping producers happy boils down to effective operations and high operating times. As well, it says it has strong, well-established relationships with producers. Maintaining strong relationships is key, says Wood.

“We think the relationship and some of the work we had done in partnering with BP in advance of the acquisition was a real driver for us to be able to win that acquisition over other parties,” he says. “Ultimately, this is a relationship business.”

Tough competition isn’t just applicable to midstream companies in the Granite Wash. It’s also heavy between the Granite Wash and other plays, such as the highly economical Eagle Ford and Bakken, says Enbridge Energy Partners LP’s vice president of commercial activities John Loiacono. “There are a number of other challenges,” he tells Midstream Business. “There are cost, human resource and equipment pressures. At the same time, we’re finding that the lead time for getting critical items is getting longer and the cost for equipment is going up.”

And like so many other plays throughout North America, the Granite Wash is also facing its share of takeaway constraints. In the liquids-rich Granite Wash, this is especially true for NGLs and condensates. With the fast pace of industry growth, it’s been tough for the infrastructure to keep pace with the growth in liquids and condensate production.

Pending projects

Luckily, help is on the way.

ONEOK Partners LP is constructing its 540-mile Sterling III Pipeline to transport as much as 193,000 bbl. per day of NGLs from the Midcontinent from the Gulf Coast. The line is expected to be completed later this year. ONEOK is also reconfiguring its existing Sterling I and Sterling II NGL distribution pipelines to transport NGLs. The estimated cost of the Sterling III Pipeline and reconfigurations is estimated at between $610 million and $810 million.

Enterprise Products Partners LP, Enbridge Energy Partners LP, Anadarko Petroleum Corp. and DCP Midstream Partners LP have teamed up to construct a 580-mile NGL pipeline that will run from Carson County, Texas, to Mont Belvieu, Texas. The Texas Express Pipeline will provide additional takeaway capacity from West Texas, the Midcontinent, Rocky Mountains and southern Oklahoma to the Gulf Coast NGL market. The line’s initial capacity will be about 280,000 bbl. per day, though it could be expanded to reach 400,000 bbl. per day.

The joint venture will also include two new NGL gathering systems, with the first connecting Texas Express to natural gas processing plants in Anadarko’s Granite Wash production area. Enterprise is constructing and operating the pipeline, while Enbridge is building and operating the gathering systems. The projects are expected to be online in the second quarter.

Enbridge has brought a number of plants to the region in recent years as well. In April 2012, it brought its 150 MMcf-per-day Allison cryogenic gas plant into service. The facility is capable of processing about 15,000 bbl. of NGLs per day. Now, Enbridge is working to complete its Ajax cryogenic processing plant. That 150 MMcf-per-day facility is slated to go online later this summer, simultaneously with the Texas Express gathering and mainline system.

Enbridge began building out its NGL-related infrastructure back in 2005, before horizontal and multistage fracing took off. Around that time, the company began building Granite Wash processing capacity and continued to do so to meet growing demand. Enbridge’s Loiacono says NGLs have played a substantial role in the company’s build-out.

“For our company, once upon a time we were a very small player in NGLs,” he tells Midstream Business. “We started realizing just how material the liquids were to our business in 2005 when we started getting involved in the Barnett shale; when we started accumulating and building more assets related to the discovery of more NGLs.

“Today the outlook is that there’s going to be a huge demand for NGLs in the global economy, and the U.S. is going to be one of the lowest-cost providers of those products. It’s going to be a continued form of growth for the U.S., and we want to be a part of that.”

The NGL infrastructure expansions don’t end with Enbridge, of course. DCP’s Southern Hills Pipeline will haul NGLs from the Granite Wash, Mississippi Lime, Cana Woodford and the Conway, Kansas, gas liquids hub to Mont Belvieu for fractionation. The pipeline will have an initial capacity of 175,000 bbl. per day and is expected to start up later this year.

Another challenge facing Granite Wash producers is ensuring their NGLs and condensate volumes have ready access to markets. “There are a lot of things in the works to solve NGL takeaway constraints,” Eagle Rock’s Wood says. “There are a number of large NGL pipelines under development that will come online this year that should provide additional capacity on the NGL side. On the condensate side, we think it presents an opportunity for us to provide a broader range of services.”

Eagle Rock has already begun doing just that. Recently, it began its transloader operations in the Texas Panhandle, where it is moving condensate and crude barrels to market using rail cars, which offers improved pricing versus trucking the barrels.

“That’s a much more effective and efficient means to transport crude rather than trying to do it long distances by truck,” says Wood. “This is an example of how we’re able—through these challenges—to see an opportunity and respond to that.”