Meritage Midstream Services II LLC and Arch Coal (NYSE: ACI) said May 15 that they have executed a letter of intent to create a joint venture, Black Thunder Terminal LLC, which will develop a rail terminal to provide crude oil handling, storage, rail loading and marketing services to oil producers in Wyoming’s Powder River Basin and downstream refiners.
Arch, with two coal mines in the Wyoming end of the PRB and one in development in the Montana PRB, will contribute reclaimed land, rail switching and loop and other existing infrastructure assets at its Black Thunder mine in Campbell County, Wyo. This is the second biggest coal mine in the U.S. Meritage will contribute capital and will build and operate the crude oil terminal on property east of Arch’s active operations and located near the basin’s crude oil production activity. Meritage will own the majority interest in Black Thunder Terminal LLC.
Because much of the required rail infrastructure is already in place, early stage crude oil transloading operations from inbound trucks to outbound trains are expected to begin at Black Thunder as early as September 2013. As demand from producers and refiners warrants, the Black Thunder Terminal will have the ability to increase outbound shipping capacity from 10,000 barrels per day in the initial phase to 120,000 barrels of crude oil per day via outbound unit train. Significant acreage is available for further expansions. The terminal will be served by BNSF Railway.
“This is an exciting day for both companies as well as the Powder River Basin. With an ideal land position and significant infrastructure already in place at its Black Thunder mine, Arch is the perfect partner for Meritage on this project,” said Meritage Midstream chairman and CEO Steve Huckaby. “We’re excited this joint venture will provide crude oil producers in the Powder River Basin with the optionality they need to bring their products to multiple markets.”
“We’re pleased to welcome Meritage Midstream to the Black Thunder mining complex. This joint venture will allow us to further optimize our assets and unlock the value of our existing infrastructure without any impact to our coal loading operations,” said Paul Lang, executive vice president and COO of Arch Coal. “This JV is a great fit for Arch. Our Black Thunder complex is ideally situated in the PRB, the required infrastructure and logistics are in place, and we already have a strong working relationship with the Meritage team.”
The U.S. Geological Survey estimates that the Powder River Basin contains approximately 1 billion barrels of remaining recoverable oil. It is also the top coal producing basin in the U.S.
New drilling technologies are being applied to legacy oil fields in the basin, allowing operators to expand their drilling programs, Huckaby said. “Approximately 25 rigs are operating in the region, more than 430 horizontal drilling permits were issued in the Powder River Basin in 2012, and 222 have been issued thus far in 2013. What the basin lacks is sufficient pipeline and rail infrastructure at the right location to move crude oil and condensate to the highest value markets.”
The proposed joint venture between Arch Coal and Meritage is subject to customary approvals, which the companies expect to receive in three to six months.