Western Midstream (WES) is riding growing interest in the Powder River Basin thanks to its recently acquired Meritage Midstream assets. Rig counts in the Powder River have ticked up from 9 in mid-February to 13 currently, and WES is capturing much of the action, according to East Daley Analytics’ rig allocation model.
The recent rig gains in the Powder River buck a broader decline in US drilling activity in 2024, dragged down by industry consolidation and low natural gas prices. Small private operators 1876 Resources, Rockies Resources, Ballard Petroleum, and WRC Energy recently brought back rigs to the Powder River, while regulars such as Anshutz and Continental Resources have long used multiple rigs in the Wyoming basin.
EDA monitors rig counts by basin and by G&P system in the weekly Midstream Activity Tracker. In our G&P allocation model, we currently allocate 6 rigs to WES’ G&P systems in the Powder River, including 4 on Meritage Midstream and 2 on the legacy Hilight asset (see figure). Both systems have picked up activity recently. We allocate 2 additional rigs from 1876 Resources and Rockies Resources to the Meritage system, and 2 rigs from WRC Energy and Ballard Petroleum to Hilight.
WES closed on the $885MM Meritage Midstream acquisition in October ’23. Since the start of 2024, combined gas inlet volumes for the Meritage and Hilight systems have grown 58%, with nearly all of the gains occurring on the Meritage assets (i.e. the 50 Buttes and Steamboat processing plants).
The growth in gas volumes is also benefiting the Thunder Creek NGL pipeline acquired from Meritage. The Thunder Creek line collects NGLs from the 50 Buttes and Steamboat plants, and throughput increased 35% in 1Q24 vs 1Q23 levels, according to data reported to the Federal Energy Regulatory Commission (FERC).
In the WES Financial Blueprint, East Daley estimates the Powder River Basin Meritage G&P and NGL assets will contribute $125MM in EBITDA in 2024. The assets account for nearly 8% of EBITDA in WES’ Gathering and Processing segment and 5% of companywide EBITDA. – James Taylor Tickers: WES.
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