Top Stories of 2025: The Daley Note, Sept. 16, 2025. Managing sour gas is becoming a challenge for producers in the Delaware Basin. Development is shifting to the deeper Avalon and Bone Spring benches, where the associated gas has higher carbon dioxide and hydrogen sulfide content. The trend toward more sour gas production creates opportunities for midstream companies to expand their services and, in some cases, consolidate.
Handling sour gas requires specialized treating facilities to remove the CO2 and H2S streams prior to processing, plus acid gas injection (AGI) wells to dispose of the waste. While treating and cryogenic capacity can be added in a matter of quarters, AGI wells require 12–24+ months to permit, plus several months to drill and commission. The extended timeline makes AGI wells the main impediment to expansions for sour volumes. Systems that pair treating, AGI and takeaway nearest to sour gas benches are best positioned to capture throughput and maintain higher utilization.
Producers in the Permian remain focused on liquids, but East Daley Analytics anticipates the basin’s natural gas will grow in value as rising LNG and power demand calls on more supply. A second tailwind comes from Section 45Q carbon capture credits, which may apply to the CO2 collected and stored with the injected acid gas. Regulations and investor pressures also tilt the market toward sequestration over flaring, so we expect producers will increasingly shoulder the extra costs associated with lifting sour gas.
The moat for midstream is AGI disposal backed by long-dated dedications, which keeps upstream volumes sticky and midstream assets full. In the G&P System Analysis tool in Energy Data Studio, systems with filed or approved AGI wells are best positioned to capture more pieces of the value chain, from gathering and treating through compression, disposal and processing. Gathering footprints without disposal wells or firm tolling contracts face constraints until they can secure access to AGI wells.
Midstream operators in the Delaware are converging on the same strategy. Targa Resources (TRGP), Enterprise Products (EPD), MPLX, Delek (DK) and Kinetik (KNTK) all highlight treating expansions and AGI well access to unlock sour volumes. Treating assets are also driving merger activity, from EPD’s acquisition of Piñon Midstream to KNTK’s purchase of Durango Midstream in 2024.
Which company could be the next target? East Daley Analytics’ Energy Data Studio shows private Delaware systems owned by Salt Creek Midstream and Vaquero Midstream lack disclosed AGI wells and are running below full capacity (see the figure above for the Salt Creek G&P system from Energy Data Studio). These assets offer immediate synergies when tied to a disposal node. Producers Midstream also owns a smaller sour-ready system and is advancing AGI wells alongside a processing expansion, enhancing its value as potential takeover candidate.
We expect continued AGI-focused consolidation and longer-dated sour take-or-pay contracts as midstream operators compete for control of choke points. As Delaware development tilts toward sour gas, the systems that combine treating with permitted AGI wells and reliable takeaway will set the pace for throughput and cash generation. – Jaxson Fryer Tickers: DK, EPD, KNTK, MPLX, TRGP.
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