Our marketing strategy seeks to ensure maximum deliverability of our physical
production at the maximum realized prices. We leverage knowledge of markets
and transportation infrastructure to enter into beneficial downstream processing,
treating and marketing contracts. We primarily sell our domestic oil and natural
gas production to third parties at spot market prices, while we sell our NGLs
at market prices under monthly or long-term contracts. We typically sell our
oil production to a relatively small number of creditworthy counterparties,
as is customary in the industry. For the year ended December 31, 2016, five
purchasers accounted for approximately 69% of our oil revenues: Flint Hills
Resources, LP (an affiliate of Koch Industries), Shell Trading U.S. Co. (an
affiliate of Shell Oil Company), JP Energy Products Supply, LLC, Big West Oil
LLC and BP Oil Supply (a division of BP P.L.C). Across all of our areas, we
maintain adequate gathering, treating, processing and transportation capacity,
as well as downstream sales arrangements, to accommodate our production volumes.
In our Eagle Ford Shale area, we are connected to the Camino Real oil gathering
system and to the NuStar Energy system. The vast majority of our oil production
flows on Camino Real, a 68-mile long pipeline with over 110,000 Bbls/d of capacity
and a gravity bank that allows for oil blending to maintain attractive API levels.
We have 80,000 Bbls/d of firm capacity on this oil system, of which we utilized
an average of 30% during December 2016 and 38% on average for the year. The
system delivers oil to the Storey Oil Terminal on Highway 97 east of Cotulla,
Texas, six miles southeast of Gardendale, Texas. From the Storey Terminal, oil
can be pumped into Harvest’s Arrowhead #1 and/or #2 pipelines, as well
as the Plains All American Pipeline connection to the Gardendale Hub. Oil can
also be loaded into trucks out of the Storey Terminal or out of the numerous
central tank batteries throughout our field, providing additional deliverability,
reliability and flexibility. We currently market our oil either at the Storey
Terminal, Gardendale or at our central tank batteries under a combination of
short and long-term contracts, ranging from monthly deals to multi-year term
sales. With adequate takeaway capacity in the region and close proximity to
the Gulf Coast refining complex, we believe we have sufficient capacity on our
contracts and do not anticipate any issues with marketing and delivering volumes
from the Eagle Ford Shale.
Our Eagle Ford natural gas production flows on either the Camino Real gas gathering
system or the Frio LaSalle Pipeline system with the majority flowing on the
Camino Real gas gathering system. The Camino Real gas gathering system receives
high-pressure, unprocessed wellhead gas into an 83-mile pipeline with capacity
up to 150 MMcf/d. The gas is then redelivered into interconnects with Energy
Transfer, Enterprise, Regency and Eagle Ford Gathering. We currently have 125
MMcf/d of firm transportation capacity on Camino Real, of which we used an average
of 43% during December 2016, and we have additional capacity available as needed.
We have firm gas gathering, processing and transportation agreements on three
of the interconnected gas pipelines downstream of the Camino Real system, with
a minimum capacity of approximately 100 MMBtu/d and rights to increase firm
capacity as necessary. In addition, gas produced from our northwest acreage
position within the Eagle Ford area is connected to the Frio LaSalle Pipeline
system, which provides access to firm H2S treating and processing. Frio LaSalle
can either return gas to the Camino Real system or, after processing, deliver
to various Texas intrastate pipelines and a mix of interstates, such as Texas
Eastern Transmission, Tennessee Gas Pipeline, and Transco. We market our physical
gas to various purchasers at spot market prices.
