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September 16, 2012

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Oil Value Chain in Pictures

This week I went on a field trip as a guest of R.W. Baird to one of the oldest and prolific oil areas in the country: the Permian Basin.   The trip included meetings with several MLPs with Permian operations, and a site visit from the one MLP that is actually based in Midland: Legacy Reserves (LGCY).  Legacy showed us a well being drilled, then showed us a flowing well and a few other small steps along the crude value chain.
Because there are only a few non-stop flights out of Austin to anywhere (certainly not to Midland), I drove the 11 combined hours there and back.  Therefore, I had several opportunities to sample the final product of this Permian oil at gas stations along the way.  There were a few links in the value chain missing from the trip, but not many.
Drilling Rig
First stop on the tour was the drilling rig.  It gets set up in a day, drills for 8-10 days, then gets taken down in a day.  Its operated by 3 crews 24 hours a day, 4 men per crew.  The drilling manager works for 4 straight days before getting replaced by another drilling manager.

We also saw where the drilling mud goes after it comes back out of the well, it goes into the pit shown below.

Wellhead, Pumpjack
When the well is finished being drilled, the rig moves on to its next job, leaving behind the wellhead (the blue thing sticking out of the ground below.  A pumpjack is attached and pumps oil out of the well.  Everything that comes out of the well (oil, gas, NGLs, water, mud) goes into that little pipe in the lower right of the picture below.

Here is the pumpjack.

Tank Area
The little pipe to the right in the pictures above flows to a central tank area where the flow from several wells (in this case 4) is separated and measured.

Oil goes into the big tanks barely pictured in the left of the picture below. On the way there, this device measures the flow and is essentially an oil cash register.

From the tanks, the oil is picked up by trucks, and I guess taken to a refinery, although it might be stored somewhere along the way by an MLP like Plains All American.   Maybe it ends up in Alon’s Big Spring refinery, where it magically gets turned into gasoline and might get sold by an Alon gas station pump like the one below.

Or perhaps Susser Petroleum Partners (pricing its MLP IPO this week) buys the gasoline and it gets trucked to a Stripes station (owned by Susser Holdings) instead.

Fascinating trip, worth the drive.
One more picture.  Below is what 40-acre well spacing looks like.  In every direction from the drilling site, at a very uniform distance, was a pumpjack signifying another well.


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