Preparing For Round 2: Lessons Learned From A Midstream Service

Goodnight Midstream found success during pre-low-oil years. Now, the water gathering and disposal firm believes it knows how to thrive again while expanding into new basins.
By Staff | March 23, 2017

The midstream water gathering and handling business is not as simple as moving fluid from A to B. Midstream service companies must deal with many of the same challenges faced by operators, including easement acquisitions, finding and staffing qualified field personnel or contractors, weather constraints and accessing capital for new construction. As well completion and production activity has increased in most plays throughout the first half of 2017, midstream firms are once again in demand. Goodnight Midstream, a company built in the Bakken that has plans of expansion into Texas and Wyoming, offers a glimpse into the challenges and continued opportunities in the fluids movement business.

The Fluid Investment
Patrick Walker, CEO of Goodnight Midstream, built-up his company’s reputation and project portfolio in the Williston Basin. The team is headquartered in Dallas. In 2011, Walker and team recognized the need for water gathering and handling services after reviewing water handling costs for a handful of potential nonoperated well working interests. “The costs were exceeding that of what we were seeing in Texas,” Walker says, noting that in some cases, water was being trucked hundreds of miles away into Wyoming due to the lack of infrastructure. Much has changed since then, he says now, but his team’s vision then still holds true today. “We saw that water was going to become an issue and we knew the life of the wells were going to be long.”
After forming a midstream water handling and disposal service in 2011, the Goodnight team—formerly 1804 Operating—had its first gathering system and pipeline connection working a year later. Today, Goodnight has 19 saltwater disposal wells and 160 miles of produced water pipelines serving some of the Bakken’s largest producers.

Investors have taken note of the opportunity present in midstream infrastructure, and Goodnight, in particular. In August 2016, Tailwater Capital LLC, an energy-focused private equity firm, announced an initial commitment of $80 million to Goodnight. The funding was provided in part to help the company expand into other operating locations, including Texas and Wyoming while it grew in the Bakken. The company recently hired Coby Washburn to act as vice president of business development for Texas and New Mexico. Washburn previously worked for Energy Transfer Partners, the company responsible for the massive Dakota Access Pipeline, originating in the Bakken.

Maintaining Positive Revenue Operations
For Walker, it all comes down to reliability. Goodnight says it tells customers that 99 percent of the time, its pipelines will be online. And, when systems are down for more than 72 hours, Goodnight will cover any costs incurred. With an expansive system of gathering lines and disposal wells in North Dakota, Walker says it is important to have a network of field staff on-call. During the recent winter, one employee had to bring a malfunctioning pump in for repairs—and back to the SWD site—during the holidays. The repair, and transport was performed in less than a day, something Walker was proud to bring up.

Walker knows how important the water handling and disposal process is to its operator clients. In most cases, water is the most expensive portion of lease operating expenses and with the competition for services always present, insuring reliability is paramount. “If you are in the oil and gas business and you must shut a well in because somebody can’t take oil out due to water issues, that production is lost forever. You don’t get to produce twice as much oil,” Walker says.

But providing a reliable service isn’t just about keeping staff on-call in the field or providing weekly reminders to team members about the importance of their job to their respective customers. Shale plays, including the Bakken and the Permian, are different, and changing. “I think our customers have different needs now,” he says.

While many wells in the Bakken can be connected to pipeline systems, some wells there will always be in remote areas that require truck transportation. Goodnight also caters to truck traffic because of that reality, Walker says. Pressure pumpers are also more evolved in their processes within the Williston Basin, he says, a fact that also requires different water takeaway requirements than the Permian.

Activity is evolving at a different pace in the Permian as well. In some cases, infrastructure in certain parts of the massive basin is already in place. But, Walker says, producers are still trying to evaluate what they are doing with water handling and gathering options. “It is in a different stage of development there. Operators are still trying to evaluate the water profile and what their needs are going to be,” he says. Well site engineers and completion consultants are just now working to figure out optimal designs. Such decisions will impact the investments or business decisions Walker’s team makes in the future, although Walker and his team were asked to expand into the Permian and the Powder River Basins at the request of current operator clients focused on the Bakken. In the Bakken, his team is already working on 2017 projects. Harsh winter conditions—and several feet of snowfall—highlighted the continued need for Goodnight’s services. “If you don’t have your produced water in pipelines and you rely on trucks, you must keep those roads open and that isn’t easy or cheap,” he says.

With activity in the Bakken and Permian noticeably increasing—albeit in different ways—Walker says that success in the midstream business, particularly the water handling and disposal side, cannot be found as it was five years ago. “Today, it is about making sure we are adding value to our customers and not just providing a service,” he says.



The Case For Greater Investment
Miller/Howard Investments Inc., a New York firm, has detailed the case for investing in oil and gas infrastructure—especially pipeline related infrastructure. Struck by the perceived notion that infrastructure work was not ideal for investors in 2016, the team put together a study showing why such investments made sense and why entities like Tailwater Capital that invested $80 million into Goodnight Midstream, were right to do so.

“This has become an emotional topic, with people taking sides based on headlines and celebrity attention,” Steve Chun, Miller/Howard’s director of marketing and product development said of oil and gas pipelines, including the DAPL. “It is important to start with the facts, which in this case, are not easy to find.”


Author: Luke Geiver
Editor, North American Shale magazine