Targa bulks up Permian footprint with Lucid acquisition eyeing future oil, gas boom

US midstream operator Targa Resources will expand its New Mexico natural gas gathering and processing holdings with the acquisition of Lucid Energy Group, after a slate of recently announced takeaway projects cleared the way for a boom in the Permian's associated gas and oil production.

Lucid, the largest privately held gas processor in the Permian, brings to the table about 1.4 Bcf/d of gas processing capacity in Eddy and Lea counties of New Mexico, and 1,050 miles of gas pipelines.

Targa's existing Permian Delaware system includes about 6,100 miles of gas gathering pipelines and eight processing plants with a capacity of 1.29 Bcf/d in West Texas and Southeastern New Mexico. With an eye on future growth, Targa in February announced the construction of a new 275 MMcf/d cryogenic gas processing plant, called the Midway plant, which will begin operations in the third quarter of 2023.

The acquisition, which was valued at $3.55 billion in cash, is expected to be completed by Q3 2022.

Prolific Permian Basin

Targa's expansion plans in the Permian Delaware are part of a wave of renewed interest in the prolific basin, as multiyear high prices for crude oil, gas, and natural gas liquids attract additional investment that is expected to translate into record-high production volumes.

Already, the basin's rig count sat at 336 as of June 16, according to data from S&P Global Commodity Insights, up 84 rigs from the same period a year ago. The additional rigs have helped boost oil and gas output substantially, S&P Global data shows.

Gas production averaged 14.3 Bcf/d as of June 16, up 10% from the first six months of 2021, putting the basin on track to see its strongest annual production on record. S&P Global estimated the Permian's implied crude oil production at 5,521 Mb/d as of June 15, up 833 Mb/d from a year ago.

Expanded takeaway capacity

In previous giddy production booms, Permian associated gas volumes have exceeded takeaway capacity, crushing the basin's spot gas prices and constraining oil and gas production. Since the last major production increase in early 2020, the Texas Railroad Commission has issued more stringent rules to combat flaring, making gas transportation capacity out of the basin an even more crucial priority for Permian producers.

A recent wave of gas takeaway expansion announcements, however, has alleviated some of the concern that history will repeat itself, paving the way for future growth over the next several years.

Most recently, a coalition, including WhiteWater, EnLink Midstream, Devon Energy Corp., and MPLX LP took a final investment decision on the Matterhorn Express Pipeline, which will move up to 2.5 Bcf/d of gas from Waha in West Texas to the Katy area near Houston. The greenfield pipeline is expected to enter service in Q3 2024.

Earlier in May, intrastate gas pipeline Whistler Pipeline also reached an FID to expand to 2.5 Bcf/d, from 2 Bcf/d. This decision came on the heels of two proposed brownfield expansions on fellow intrastate gas pipelines Gulf Coast Express and Permian Highway Pipeline, both of which bring gas from the Permian to the US Gulf Coast. Should these two expansion projects move forward as proposed, up to 1.2 Bcf/d of new capacity will come online by end-2023.