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Permian Basin 2017

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PERMIAN BASIN: MIDSTREAM 70 | November 2017 | hartenergy.com Upgrading takeaway capacity from the Permian Basin is more than pipes and pumps. It is also rails and refining. Early in August the Texas Department of Transportation (TxDOT) announced plans to use a $7 million federal grant from the U.S. Department of Transportation to strengthen existing rail infrastructure in the Permian Basin. That is particularly good news for MMEX Resources, a development company that plans to build a refinery in the heart of the basin. In-basin crude processing is hardly new, even in the unconventional era. A small topping plant was built in the Bakken two years ago, mainly to provide diesel and distillate to local markets. But with ideas of 50,000 bbl/d to 100,000 bbl/d, the Pecos County Refinery is a horse of a different color. Phase 1 would be a 10,000-bbl/d standalone crude distillation unit to be in service in third-quarter 2018. But Hart Energy's Midstream Business has learned that MMEX's new long-term plans have grown from 50,000 bbl/d to 100,000 bbl/d in a separate standalone full-scale refinery, mostly as a result of encouragement from crude suppliers in the basin. "Crude out of the shales is getting lighter and lighter," said Jack W. Hanks, president and CEO of MMEX. "Some of it is almost condensate or natural gasoline, going to 50 degrees API or more. Most of the existing refineries are built for crude in the range of 30 to 40 degrees." So the question for midstream operators in shale plays is not just one of moving molecules to market, but what molecules to which markets. Just a week before the TxDOT announcement, MMEX completed the purchase of a 126-acre parcel about 20 miles northeast of Fort Stockton, Texas. The company immediately then filed permits for the initial refining train company expects to obtain full permitting on the initial unit within 45 days of filing, and when all permits are in hand, it plans for 15 months of construction. The refinery is to be built about 20 miles northeast of Fort Stockton, near the Sulfur Junction of the Texas Pacifico Railroad. MMEX has a $3 million facility with Crown Bridge Partners, but the full cost of the initial phase was not disclosed. Projected costs for the 50,000-bbl/d plant are about $500 million; that would rise to $875 million for the 100,000-bbl/d version, according to Hanks. In May the company signed a letter of intent with a crude supplier, which Hanks declined to name. Inputs and outputs will primarily move by truck, but MMEX will also take and make shipments by rail and pipeline. To that end the TxDOT plans are key for MMEX. The federal funds are expected to help rebuild the Presidio- Ojinaga International Rail Bridge and 72 miles of track on the South Orient Rail Line that run from the Mexico border to near Coleman. The track is owned by the state but leased to Texas Pacifico Transportation that maintains and operates the line. Texas Pacifico, in turn, is owned by Ferromex, part of the industrial conglomerate Grupo Mexico. "TxDoT's planned recompletion of the bridge and improvements of the rail line are a major step for exporters and importers of all commercial goods from Western Mexico out of and into the West Texas Permian Basin area," Hanks said. "We are building our proposed refinery on the railroad in Pecos County precisely for this reason. We will also be just 20 miles from Interstate 10." The Texas Pacifico-South Orient railroad gives shippers in the Permian access to western Mexico including its Pacific deepwater ports, the Dallas-Fort Worth midcontinent region and the Gulf Coast ports through interconnections to the Union Pacific, Burlington Northern Santa Fe, Fort Worth and Western, Kansas City Southern and Ferromex. What will be going out on those rails from the Pecos County Refinery, at least initially, will be three general cuts. There will be a naphtha fraction for making gasoline and atmospheric tower bottoms, essentially fuel oil. Those both will be shipped to other refineries either in the region or to the Gulf Coast. The third cut will be a diesel fraction that is not low enough in sulfur to be used as motor fuel but is an ideal fracture fluid. "It is actually better than low-sulfur diesel," Hanks said. The original plan was to export most output to Mexico, but he said that is now a long-term goal for the larger facilities. n —Gregory DL Morris In-basin Refining Gets a Boost

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