Encana midstream buyer looks to support new exploration

By Dennis Webb
Tuesday, October 11, 2011

A company that plans to buy part of the Piceance Basin natural gas distribution systems of Encana Oil & Gas (USA) says it also has committed to build facilities to support Encana’s newly emerging local exploration and development of geological formations including the Niobrara.

Dallas-based Summit Midstream Partners has identified itself as the would-be buyer of $590 million in pipelines, compressor stations and other natural gas distribution, or midstream, facilities Encana owns in the Rifle-Parachute area. The sale is expected to close before the year’s end, pending regulatory approvals.

Summit said in a news release that it has committed to building midstream infrastructure for Encana’s growing Niobrara development. Summit president and chief executive officer Steve Newby said the company “looks forward to providing premium midstream services to Encana and other area producers as the traditional and highly economic” natural gas production in the Mesaverde sandstone formation is supplemented by new drilling in the lower-lying Mancos shale and Niobrara formations.

Several companies have begun exploring those formations. At least two — Encana and Delta Petroleum — have reported some promising early results. Elsewhere in Colorado, companies have been hotly pursuing oil development in the Niobrara. Locally, Encana has encountered rich gas deposits and also produced some oil.

Summit has offices in Dallas, Houston and Atlanta. Its purchase of 260 miles of pipeline and 90,000 horsepower of compression facilities in the deal would mark its expansion to the Rockies.
The facilities transport 500 million cubic feet of gas per day and serve not just Encana but multiple producers. They represent about a third of Encana’s gas gathering systems serving its operations in the Piceance. Encana built them to support its local drilling, but has said the sale reflects its desire to focus on exploration and development, and would generate capital it can invest in that.