The midstream has been a busy sector in the past decade as the U.S. adjusts to an abundance of natural gas, NGL and crude oil. While this much activity allows for a pretty quick entrance into the sector, it’s hard for a company to find a niche.

For M3 Midstream LLC (Momentum) this niche was building large midstream projects.

“When we formed in September 2004, there were very few companies in the space that raised large amounts of private equity and built large-scale greenfield projects,” Frank Tsuru, president and CEO, told Midstream Business. “Today, everybody can raise a large amount of private equity, but back in the early-2000s raising $200 million was a huge number.”

The company focused on building large greenfield projects in the major shale plays with the aim of selling them to MLPs once they began operations and the cash flow ramped up. Momentum has built new projects in the Barnett, Haynesville, and most recently, the Marcellus and Utica.

Utica hub

As Momentum gained experience, the projects have grown in size with the cost of the Utica East Ohio system (UEO Buckeye)surpassing $1 billion. This project is designed as a hub for the Utica and includes the Kensington processing plant, the Leesville processing plant and the Harrison Hub fractionation complex with gathering and NGL pipelines connecting them.

“What separates M3 from many other companies is our ability to get these large, complex projects built on time and, I think more importantly, is that they are very reliable and efficient. We have a runtime that is second to none. Our Utica facilities have averaged 99.5% runtime through 2014, and we’ve been running at 100% for the past six months,” Tsuru said.

Factoring this reliability and efficiency into the design process can increase the cost of projects somewhat, but it benefits the customers by providing them with increased netbacks. This requires designing facilities for the specific purposes based on the composition of the gas and liquids coming in as well as utilizing the energy the facilities generate on their own, primarily heat integration.

“As a processor, these efforts pay off when producers are attracted to our system by fuel percentages that are substantially lower than the competition,” Tsuru said.

As these projects have grown in size and cost to the multibillion dollar range, the list of potential suitors has shrunk. At the same time, Momentum has grown along with the size of its projects and isn’t focused solely on selling assets to MLPs, according to Tsuru.

“To say we are solely targeting MLPs is not the case, but to say we’re not targeting MLPs would not be accurate either. There are multiple avenues available to us now that we have such large assets,” he added.

Not ‘living by the quarter’

One of the future avenues available to Momentum is going public, but Tsuru noted the advantages of being a third-party independent is not “living by the quarter” while also retaining strong flexibility that allows the company to quickly meet customer needs.

“[Our flexibility], our flat decision process and agility allows us to build assets for these shale plays ahead of when our customers have their production available to us,” he said. “We have to make decisions in design and operations very, very quickly and as a small, independent company we’re able to do that.”


M3 Midstream’s executive team, from left to right: Brant Baird, executive vice president and COO; Frank Tsuru, president and CEO; and George Francisco, executive vice president and CFO, has been together for nearly a decade. This experience has enabled the company to be nimble and able to make quick decisions. Source: M3 Midstream LLC

While public companies are also able to work closely with customers to meet their needs, they might not be able to take the sort of risks taken by Momentum. The UEO Buckeye system was able to come online in time just as the Utica began to explode.

“We work in concert with our customers—they give us an expected volume profile, and we update them all the time in terms of the project’s timing. They adjust their completions and their drilling schedule to our timing and vice versa,” Tsuru said. The company also plans its projects to have larger capacity than current needs in order to stay ahead of their customers’ production curves.

The main customer for the UEO Buckeye system, Chesapeake Energy Corp. and its partners TOTAL SA and EnerVest, started drilling in the Utica earlier than other producers and had a significant backlog of wells ready to come online, which allowed the companies to bring the wells and plants online in a close time frame.

The system is also benefiting by being in the middle of the play’s rich gas/condensate window and is ideally positioned for access to potential oil windows further north and west in the play. The ideal location is further emphasized through the ability to utilize multiple forms of transportation, including pipe, rail and truck, in order to serve as a true regional hub.

Harrison Hub

“The Harrison Hub has the ability to flow propane, butane and ethane to all of the major NGL takeaway lines, both existing and future. The facility was also developed to handle unit-train size propane and condensate loads. The rail yard has 7,400 feet of Ohio Central Railroad frontage and about six-and-a-half miles of rail within the yard, which provides plenty of storage for cars, but it was designed specifically to be able to takeaway large quantities of liquid. We’ve also been able to have trucks unload stabilized condensate at the rail yard. We have about a million barrels of liquid storage at Harrison. So there is multiple liquids handling, storage points and transportation points at the hub, none of which come at an extra cost to our customers,” he said.

All of this optionality provides customer access to nearly every market.

Momentum worked with other midstream companies—specifically those with large takeaway projects headed to the East Coast—to ensure this market liquidity. These projects include Sunoco Logistics Partners LP’s Mariner East 2 project, Marathon Oil Corp.’s Cornerstone Pipeline, Kinder Morgan Inc.’s Utica-to-Ontario Pipeline Access project and Enterprise Products Partners LP’s Appalachia-to-Texas Express Pipeline and the TEPPCO Pipeline. Tsuru also said that the Harrison Hub with its 135,000 barrels per day of ethane fractionation capacity is prepared to connect to any ethane cracker that may be built in the region.

Project focus

In recent years, the company hasn’t focused on the acquisition market, and it is likely that Momentum will continue to focus on new projects rather than acquisitions.

“We don’t anticipate a change in our focus. Our company is really structured for greenfield projects. We have a very large engineering/construction department. When you compare our technical team to other companies, it’s as large or larger than many very large midstream companies,” Tsuru said.

While the Appalachian Basin has been a focal point for the company over the past few years, it is not the only region that Momentum is interested in. Tsuru said that the company hopes to announce a project aimed at helping improve access to cheaper heating fuels for the New England market. While he declined to discuss specifics, Tsuru said that the project would be a liquids storage facility.

“One of the biggest conundrums for the New England market is a lack of liquids storage. Last year there was a huge shortage of propane for the Midwest and Northeast. We worked closely with the State of Ohio to provide emergency propane deliveries on the short-term, as well as to provide long-term propane and other liquids storage solutions,” he said.

The need to find a niche in the midstream space has only grown as the sector has expanded. Tsuru noted that when Momentum began there were only a handful of private equity-backed companies with a similar financial wherewithal, but today the space is very full with close to 100 private equity-backed midstream companies.

“Some of the newer companies are ready to do any sort of project in order to get started, which makes it difficult to keep going along with the crowd, if you will. So we’re looking at a bit of a shift away from supply-side projects toward the demand side: Who needs these commodities?” he said.

The company’s successful track record of developing various projects is also very helpful in securing new projects as it shifts toward new segments of the market, according to Tsuru.

“There was a time 10 years ago that people wouldn’t answer our phone calls, but now we’re asked to participate in projects, which is a big difference, thanks to our track record of execution,” he added.

Frank Nieto can be reached at fnieto@hartenergy.com or 703-891-4807.