A Chat With Tallgrass CEO David Dehaemers

Continuing our series of interviews with senior energy executives, we recently had the opportunity to catch up with David Dehaemers, President and CEO of Tallgrass Energy GP (TEGP). The theme of our discussions was: How has the Shale Revolution changed your business? Behind the miserable recent performance of energy infrastructure securities lies the most fantastic American success story. U.S. oil and gas production have significantly altered global markets, culminating with OPEC’s 2016 about-face on low oil prices (see OPEC Blinks).

OPECtried to bankrupt the U.S. Shale industry and failed, because the American capitalist system showed its flexibility. Innovation and productivity improvements substantially lowered break-evens for U.S. producers. Since then, a constant source of investor frustration has come from trying to reconcile booming domestic production of hydrocarbons with the languishing stock prices of the businesses that gather, process, transport and store them.

The Shale Revolution has impacted Tallgrass as much as any business. CEO Dehaemers noted that their Pony Express crude oil pipeline that runs from Wyoming to Cushing, OK probably wouldn’t exist without it. Even more striking has been the change to Rockies Express (REX), the natural gas pipeline originally built to supply Rocky Mountain gas to Ohio and beyond. As Marcellus Shale production turned the region from an importer to an exporter of natural gas, REX’s prospects, especially at its eastern sector, dimmed.

So Tallgrass reversed the flow of the pipeline, allowing Pennsylvania gas to supply Chicago and the midwest. In the process they created a “header” system that, by running in both directions across the northern U.S. can link up with north-south pipelines to add further supply routes. We’ve written about this in the past (see Tallgrass Energy is the Right Kind of MLP).

As well as the impact on Pony Express and REX noted above, Dehaemers commented that the Shale Revolution had allowed better use of their existing assets. Like all midstream businesses Tallgrass works closely with their producer customers, seeking to ensure that infrastructure capacity is synchronized with growing oil and gas production. The trend is towards fewer vertical wells as drillers employ multi-pads (“mega-pads”), often consisting of up to 16 wells within 400 yards of one another, each with multiple horizontal wells branching off. This is a significant source of the dramatic productivity improvements that many Exploration and Production (E&P) companies have enjoyed in recent years.

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Disclosure: We are invested in TEGP.

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