Fledgling pipeline company Tall Oak Midstream LLC has scored a coup with a long-term acreage dedication from Aubrey McClendon’s new company focused on Oklahoma’s Woodford Shale.
Tall Oak, which is about five months old, will build a natural gas gathering and processing system in north central Oklahoma to serve multiple producers in the liquids-rich play, which features stacked pay zones.
The system will be anchored by American Energy-Woodford LLC, an affiliate of former Chesapeake Energy Corp. CEO McClendon’s American Energy Partners LLC.
“We’re excited to have a project so close to home,” Tall Oak CEO Ryan Lewellyn said.
Lewellyn said the new Edmond company’s existing relationships helped it secure American Energy-Woodford’s business after a request for proposals went out to about a dozen midstream firms. Carlos Evans, Tall Oak’s chief commercial officer, had been manager of gas sales at Chesapeake.
American Energy-Woodford’s dedication spans an area of about 1 million acres that includes all previously undedicated acreage in Payne County and parts of five surrounding counties.
The Oklahoma City-based company contributed its existing gathering lines to Tall Oak in exchange for a minority stake in the midstream firm’s new system, dubbed the Central Northern Oklahoma Woodford system. It has an option to increase its non-operating interest in the system to as much as 50 percent.
Lewellyn said Tall Oak will build out about 250 miles of gathering pipeline, starting with the 60 miles it is acquiring from American Energy-Woodford.
Tall Oak is talking to other producers about using its new gathering system as well, he said.
Tall Oak also will build a cryogenic processing plant with nitrogen rejection capabilities south of Cushing, he said. The Battle Ridge plant initially will be able to process 75 million cubic feet of gas a day, but there will be room to quadruple its capacity if needed.
“The needs of American Energy will grow as they drill more wells,” Lewellyn said.
The plant is expected to be completed by December.
Tall Oak has up to $400 million in equity commitments from EnCap Flatrock Midstream to spend on its new system.