September 2016, Vol. 243, No. 9

Features

Vaquero Building Out Southern Delaware the ‘Old-School Way’

CEO Gary Conway likes to say his company’s brand, as well as its philosophy, has much in common with the centuries-old Mexican horsemanship tradition of the same name, which values equestrian quality of achievement over rapid results.

“The word vaquero essentially means willing partnership,” the 24-year oil and gas veteran told P&GJ recently. “It’s all about the rider creating a willing partnership with his horse. I always thought what a great idea to use in your business.”

Now that Vaquero, the company he co-founded in 2014, is a thriving reality, having just placed a new 200 MMscf/d cryogenics plant online to meet some of the takeaway constraints in the Permian’s Southern Delaware Basin, Conway has found ample opportunities to test his business mantra. Doing so, he believes, starts with establishing communications in a straightforward manner.

“This is really nothing new. It’s an old-school way of doing what you say you’re going to do,” he said. “You earn your reputation everyday by doing those things.”

That methodology has been working well so far. In addition to the cryogenics facility, located in Pecos County, TX, near the Waha hub and the Lone Star NGL pipeline, the relatively new midstream company has a major gas gathering project underway.

About 100 miles of 30- and 24-inch pipeline will soon be traversing key rich gas regions in the basin, passing through Pecos, Culberson and Reeves counties. This high-pressure pipe will connect producers to at least a dozen residue pipelines and markets, as well as providing an NGL connection to the Mont Belvieu hub.

Rich gas, also called wet gas, comes from reservoirs where hydrocarbons are not mature enough to be transformed into methane. As a result, the stream contains methane and a mix of heavy hydrocarbons, including butanes, ethane and propane – or NGLs. The cryogenics process separates the rich gas into methane and NGLs.

The Vaquero facility, specifically built with Delaware Basin gas in mind, will provide best recovery and efficiency scenarios, regardless of current prices, thereby maximizing producers’ netback. The Waha hub offers prime flow assurance and pricing for the residue natural gas, and the Lone Star NGL Pipeline connects the liquids to the Mont Belvieu NGL market.

Though the Southern Delaware is mainly an oil play, handling its associated gas has challenged producers, and upstream investment has generated a need for quality midstream infrastructure. Vaquero’s large gathering and process system is designed specifically for new gas production in the basin, meeting takeaway limitations and providing higher plant recoveries, reduced downtime and lower fuel usage.

“One issue has been the infrastructure that’s in place. It’s been either too small of pipe, or the pressure rating wasn’t adequate, or it couldn’t handle the rich gas, including the liquid dropout in the middle,” Conway said. “It was causing quite a bit of a strain, which was the reason for us to build our project.”

He sees the basin’s need for lower pressure (below 60 psi) at wellheads to handle rich gas as an ongoing situation which could prompt Vaquero to put in a pipe that could be converted to higher pressure at some point. What will change, though, is there will eventually be a lot more pipe in the Southern Delaware – a minimum of four pipelines by Conway’s estimation. This calculation is based on six to eight wells per section.

“Obviously, Vaquero can’t do it all,” the former TEAK Midstream vice president of engineering and operations said. “But I think we can do our part to lay out the infrastructure so if you brought a high-pressure, rich-gas gathering line to us we could take care of it in that big line, and then process the gas, if that’s what a producer already has, or we can go back to the wellhead with them.”

Conway said Vaquero’s early interest in the Southern Delaware had much to do with breakeven costs of $30 and $35 for producing a barrel of oil in the region, and that occurred before some of the larger laterals were in place.

“Even though some of the rigs were falling off from $120 (a barrel) or so, that was amazing,” he said. “It still fell off in Southern Delaware but it was less of a decline.”

Seeing the economic value for producers in the region and their need for the service Vaquero provides, Conway seized the opportunity to establish something of lasting quality, what he described as a “legacy asset.”

“Generally in my career I have been part of teams that built large, quality assets that were meant to be there for quite some time. This is not one of those private equity groups that throws down a smaller plant, cobbles together a little pipe and flips it.”

Conway feels fortunate to be backed by investment funds affiliated with Yorktown Partners, LLC, which has allowed his company to move forward with plans despite the economy. This, even though the initial ramp-up “may not be as strong” as the company assumed it would be.

 “You’d be surprised how many calls we’ve gotten from people who said, ‘Y’all did exactly what you said you would’,’” he added.

Conway’s passion for the industry is obvious, and his experience as former vice president of Petrohawk/Hawk Field Services (treating and construction), and as director of processing at Energy Transfer Partners, where he helped guide the company in the Barnett Shale and led construction and operations of the 500 MMscf/d Godley Cryogenic Complex, has provided plenty of experience with large projects, designed to become even larger.

For the most part, Vaquero’s new projects have gone off without a hitch, though initially, Conway said, the company had some trouble getting the needed 30-inch pipe on schedule. Mammoth Carbon Products ended up filling the order at “really good pricing and at about the time we needed it,” he added.

The company initially encountered some difficulty concerning right-of-way, though Conway said that stemmed from a rift between some members of the community and a company that pre-dated Vaquero’s arrival.

“Some folks had made promises to people and then let them down as far as using options or using land for right-of-way,” Conway said. “In doing that, it left a sour taste in some of these people’s mouths.”

To address those concerns, Vaquero went into the community to meet with leaders, including Pecos County Judge Roger Harrison, who has close ties with local ranching interests. Conway assured those attending that his project had no affiliation with the company in question and the situation was resolved.

With completion of Vaquero’s gathering pipeline and Caymus Processing Facility, producers eyeing Mexico as a place to maximize profits at a time when much of that nation’s industrial components are moving away from oil products have the added option of four tie-ins at the Waha hub which can get a producer to 12 other pipelines.

“If producers want to drill more wells, think of the crude volume and the gas volume associated with that crude – that rich gas that needs processing, it doubles or triples,” Conway said. “What they have with our asset is the ability to grow into it. They have that growth capacity without doing anything different. That, to me, is the key for producers now.”

Conway views Vaquero as “a trunkline spine that basically goes through the belly of the core parts of the Southern Delaware.” While the company is intent on “filling that in,” it will take time, as will expansion of the cryogenic facility. That expansion will most likely come through organic growth rather than through acquisitions.

“You never say no about acquisitions, but that’s usually not our game,” he said. “If it’s strategic it could make sense, but we feel like we do a pretty good job in construction and operations.”

As an East Texas native, Conway was no stranger to the oil and gas business. After graduating Texas A&M University with a degree in chemical engineering, he gravitated toward designing ethylene plants, but his true passion was always to work as a midstream operator.

“Jobs weren’t that plentiful when I left college, and I ended up traveling around the world designed ethylene plants,” he said. “One day I just made up my mind to get back to what I wanted, to the origins of what I wanted to do.”

Through contacts he’d made along the way and from some of his bosses at the ethylene group, he made his way back to refineries and then landed a job with Crosstex Energy where he rose to manager of engineering. Things took off from there.

“I don’t like to pontificate but it’s important to enjoy what you do. Envisioning an asset and then seeing it become a reality is pretty exciting,” he said.

Among Conway’s biggest concerns as CEO of Vaquero is ensuring that employees are growing and functioning in a “good manner” with each other.

“That people know their jobs matter, and that what they are doing is a viable product within the company as a whole, makes it very rewarding to watch people work together,” he said.