East Daley Analytics – Dissecting the Energy Value Chain

Gathering & Processing Rates Report

To bring greater transparency to markets, East Daley Analytics is undertaking a broad study of G&P system rates. We maintain asset-level financial models for over 1,000 assets owned by public companies. From this asset pool, we’ve identified 200+ G&P systems for which we can confidently assess rates. We’ve created a G&P rate methodology based off our balanced public asset models. 

How Does It Work?

Using 1Q22 results, we can calculate an average G&P rate for these systems such that:

 Gross Margin / Volume = Blended Rate ($/Mcf).

Our investigation finds a wide variance in the G&P rates assessed from basin to basin. The graph presents estimated 1Q22 G&P rates in basins targeted for liquids. On the high side is the Denver-Julesburg (DJ) Basin, where operators received an average of $2.59/Mcf for G&P services in 1Q22. On the low side is the Anadarko Basin, where we calculate an average $0.74/Mcf rate for G&P services. 

G&P Rates Report Graph

In other words, producers in the DJ in eastern Colorado paid 250% more on average for midstream services than their counterparts in Oklahoma, just one state over. What can explain these huge differences in midstream service costs? Several factors influence G&P rates. Barriers to entry are one factor that can limit the amount of competition for midstream services within a basin. In the DJ Basin, two companies (DCP Midstream and Western Midstream) are the dominant providers of G&P services, while basins like the Permian and Anadarko have dozens of companies competing for business. A second factor is the relative sophistication of producer counterparties. If midstream service costs trend too high in a basin, well-capitalized operators (i.e. majors and large independents) may opt to build their own gathering systems. A third factor is the dominant contract structures (i.e. postage rates vs POP contracts) used in a basin, which can influence G&P rates when commodity prices are unusually high or low.


G&P Rates Report

Competitive Basin Rates Analysis

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