Tall Oak Midstream may be a new player in the Midcontinent, starting up just a year ago. But the new firm’s experienced executive team, including its CEO, knows a thing or two about the midstream business, giving Tall Oak a competitive edge in its Oklahoma service area.

MIDSTREAM: Take a moment to describe your background in the midstream before you came to Tall Oak.

LEWELLYN: My experience in the midstream business was with DCP Midstream where I was a managing director for the Midcontinent business unit for three years out of its Tulsa, Okla., office. Prior to that, I worked for FirstEnergy, a large electric utility in the Northeast where I was involved in mergers and acquisitions, business development and operations. I held multiple operations leadership positions with FirstEnergy’s operating companies in Pennsylvania and Ohio.

MIDSTREAM: So you have a working knowledge of the Marcellus and Utica?

LEWELLYN: Yes, I grew up in that part of the world so I know it well. We actually believed that our initial project at Tall Oak would be in Marcellus and/or Utica when we first formed. While at FirstEnergy, I managed a team that was responsible for a number of projects providing electrical service to producers in the Marcellus and Utica plays. Actually, when I was an asset director at Pennsylvania Electric, I saw many small towns in Pennsylvania, like Towanda, experience significant growth as the result of oil and gas development.

MIDSTREAM: People are very important in making a company successful. Describe the management team that you put together at Tall Oak. How do you work together?

LEWELLYN: There is nothing I like talking about more than our team. I’ll start with Carlos Evans, our chief commercial officer. Carlos and I had a business relationship while he was with Chesapeake [Energy Corp.], where he served as manager of gas sales. Carlos had the pleasure and challenge of marketing gas for Chesapeake across the country and has a great deal of experience in commercial and business development, gas scheduling and contract administration.

Lindel Larison, our COO, was a big part of Chevron Phillips [Chemical Co.] and Chesapeake midstream. Of course, most of Chesapeake’s midstream assets were sold to Access Midstream. Lindel worked on teams that built many of Chesapeake’s assets in the Midcontinent, Barnett and Haynesville and supported Chesapeake’s commercial group on various other midstream assets across the country. He has a lot of experience engineering and building plants, compressor stations, pipelines—and doing a great job with those assets.

Max Meyers is our CFO. He was treasurer at OGE Energy where he played a key role in the formation of Enable Midstream Partners, which merged CenterPoint Energy and OGE midstream assets. Max is an immensely talented guy; he’s a great leader.

The thing I like about our team is we complement each other so well, and we all have experience managing complex assets for some of the biggest players in the industry. Carlos has a great marketing background and approaches all of our deals from the customer’s perspective because he was in that seat for so many years. Lindel brings deep experience in large greenfield projects and operations. Max has led large M&A and financing efforts and has international leadership experience. And I can’t master anything, so I have a financial, commercial and operational background.

MIDSTREAM: You partnered with Encap Flatrock Midstream for Tall Oak’s initial financing. What do private equity providers look for in a midstream management team?

LEWELLYN: That’s a great question. I think every equity provider looks for a team they feel confident will succeed in identifying and executing on a project. They need to know that a team will be able to put their money to good use and will manage it very efficiently. One of the things I think a lot of private equity firms really liked about us was that we’re a relatively young team, so we’re in this for the long haul. We plan on owning and managing multiple assets for years to come, and it will be a long time before any of us retire.

A lot of private equity firms, I believe, are seeing the benefit of teams that have the potential to launch a start-up two, three, four or even five times. Of course, one of the hardest parts of private equity’s job is attracting and forming talented management teams. If a team does a start-up once and leaves, that makes their job that much harder.

MIDSTREAM: How does a producer benefit from working with a smaller, equity-backed midstream provider such as Tall Oak? What do they gain from the relationship?

LEWELLYN: If I could sum it up in one word it would be “focus.” We know the name of every well they drill and how it performs. We are committed to our customer’s success and we put that first. By working with us, a producer reaps the benefit of having an in-house midstream provider without the cost. Those advantages include our speed and efficiency. We also don’t have to balance the needs of hundreds, even thousands, of customers. We’re very focused on meeting a customer’s specific needs—we don’t have to balance what’s best for them vs. all the other customers on our systems.

MIDSTREAM: How do you compete with the larger, existing midstream operators active in the same area?

LEWELLYN: I used to say old pipe always trumps new pipe when you’re running the economics, but the development of the shale plays has changed that. Today, because we are developing greenfield systems, we’re not burdened with operating 50-year-old assets that weren’t designed for larger horizontal wells—which is most of the current new production.

Again, we also don’t have the challenge of balancing hundreds to thousands of customer needs. That allows us a good opportunity to compete because we’re building brand-new systems that are specifically designed for the type of production that our customers are bringing. We’re building state-of-the-art gathering and processing facilities that ultimately offer better netbacks.

To sum it up, when you work with these bigger companies, they’ve just got so many other things to manage that they can’t necessarily provide the focus that our customers need.

MIDSTREAM: What are the keys to success in the Midcontinent? It’s a rapidly changing, rapidly developing area.

LEWELLYN: I think it’s definitely our team and what we bring to the table. We have strong relationships that come from a history of working with a large number of producers and performing for those producers. So there’s a lot of trust in Tall Oak even though we haven’t been around for a long time. Producers know our history and know what we are capable of doing.


Tall Oak’s executive team, from left: Lindel Larison, COO; Carlos Evans, chief commercial officer, CFO Max Myers; and CEO Ryan Lewellyn.

We have also been working hard to get ahead of everyone. We are looking at greenfield projects focused on the areas that we think are ripe for those projects and will allow us to move quickly to meet demand.

For our CNOW [Central Northern Oklahoma Woodford] System, for example, we ordered a processing plant early on—purchased a plant site early on—even before having a customer. This system is now anchored by American Energy-Woodford [LLC], an affiliate of American Energy Partners.

We already have 180 miles of gathering pipe that we have built, acquired or have under construction, and we started up our first compressor station in the fourth quarter of 2014. The Battle Ridge processing plant will be completed early this year. We’re pretty excited about that. We knew we had to take some risks and move quickly to get ahead of producers getting great results in the CNOW’s stacked pay zones like the Woodford Shale, Mississippi Lime, and Cleveland formations, and it’s been an effective strategy for us.

We announced late last year that we’re expanding the CNOW system into Noble County to serve Dorado E&P Partners and a couple of other customers. We’re actually expanding the system southeast into Lincoln and Creek counties for other producers. We’ve had a strong demand for that system. We’re also putting in a nitrogen rejection unit [NRU]. Nitrogen is becoming a challenge in the Midcontinent, and I believe that we have one of only two plants in Oklahoma with an NRU.

MIDSTREAM: Why did Tall Oak focus on the Midcontinent? You and your team have significant experience in the Marcellus/Utica and other plays.

LEWELLYN: Very early on, we did not believe we would be in the Midcontinent, but once we launched we started getting a lot of phone calls and interest from folks who knew our track records and wanted us to come look at projects in the area.

Quite frankly, at the time, we thought that there might be bigger opportunities in the Utica and Marcellus and other areas. But we’re not complaining. It’s very exciting for us to have assets right here in our backyard and to be serving the great state of Oklahoma and creating jobs here.


Construction moves ahead on Tall Oak’s Battle Ridge gas processing plant in Payne County, Okla.

MIDSTREAM: How do you see production in the Midcontinent playing out in the next several years?

LEWELLYN: Production from many of the plays in the area has been significantly derisked. I think there will be a lot of opportunity for low-cost drilling programs that target multiple pay zones. A producer can target dry gas, wet gas and oil. I believe this will drive E&P companies—even under commodity price constraints—toward the Midcontinent. I’m pretty bullish on the outlook for the Midcontinent going forward.

The SCOOP and STACK are exciting plays that are definitely creating a lot of buzz. If these plays continue to develop, I think the challenge will be to make sure that the downstream markets for residue gas and NGLs are available.

I think at this point the dry gas plays are not going to get a lot of attention. However, there are definitely some helium-rich, dry-gas plays in southwest Kansas and the Texas Panhandle that, with helium prices, are going to do fine.

I believe that the STACK and the SCOOP are where a lot of folks are going to be because of strong oil production, multiple targets and the fact that a producer can drill so many wells off of one pad. These are very economical areas to drill.

The CNOW play, where our first system is located, is shallow and the cost of drilling there is low, $3 million to $4.5 million per well. We’re seeing really strong results with lower completion costs. I think that is going to be pretty attractive—and even more attractive if commodity prices stay strained.

The Granite Wash is also very attractive because producers have the ability to target different zones. I think that area will continue to be busy. I don’t think you’re going to see as much activity there as in the CNOW, SCOOP and STACK plays, but it is well proven and probably not that risky for producers. You will see steady, infill production.

MIDSTREAM: What does a successful growth strategy look like for Tall Oak?

LEWELLYN: The assets we’re building for our initial CNOW and STACK opportunities are substantial, and we see quite a bit of growth potential for both systems. We’ll stay laser-focused on these two projects for the next 12 months as we build out our assets and grow our customer base. Once we get past that and those assets are well established, we’ll start looking at other opportunities.

MIDSTREAM: You mentioned lower commodity prices, which are on the industry’s mind right now. Investors are concerned about lower commodity prices slowing drilling. From your viewpoint, how does that affect the midstream? How do you manage the potential price volatility?

LEWELLYN: The most important thing we do is stay in constant communication with our producers. We work closely with our customers to understand any changes to drilling schedules. This helps us manage how we option or purchase rights of way to wells that are further down drilling schedules that may be subject to change.

It’s also important to understand if a producer owns or leases its rigs and at what price they might look at shutting a rig down or moving it somewhere else. The customer relationship, and having strong communications, is just so good for both parties. It furthers the business relationship and helps everyone manage risk.

MIDSTREAM: The midstream keeps changing. What do you see down the road five or 10 years ahead, for this business?

LEWELLYN: I think the North American production system will continue to grow. I think technology will continue to advance to allow wise production companies to get their hydrocarbons out of the ground more economically. I think we’ll develop some strong export opportunities as a country and continue with petrochemical expansions that will hopefully increase demand to support the increase in supply.

From the midstream perspective, I think there are a lot of new assets that have to be built just to catch up with what producers have been doing the past few years.

Paul Hart can be reached at pdhart@hartenergy.com or 713-260-6427.