Durell Johnson’s career has come full circle. Twenty years after ending his association with the Ladder Creek Helium Plant, Johnson began 2020 as its new owner. Far from seeing it as a sentimental step back, Johnson has returned to complete a vision of making Ladder Creek one of the most significant sources of helium in the US.

Source: Tumbleweed Midstream

Durell Johnson back at Ladder Creek in 2020

“I wanted come back and finish what I started,” Johnson told gasworld.

“So, when the opportunity came up last year to acquire the plant, I jumped at it because I really believe in the tremendous growth potential that Ladder Creek represents for the region’s gas producers and for US helium supply. The helium resource is here, but in the past 23 years it has not been exploited or developed to anywhere near its full potential. I wanted to come back and prove that we can turn the Ladder Creek plant and the surrounding gas resources into one of the top helium-producing resources in the US.”

Johnson is CEO of Tumbleweed Midstream, LLC which he established last year to acquire and operate the Ladder Creek Helium Plant and Gathering System located close to the Colorado-Kansas border. Tumbleweed acquired Ladder Creek from DCP Midstream in December 2019 and, for Johnson, it was a reclaiming of a lost love. From 1997 to 1999, Johnson was Project Manager/Engineer and Operations Director for Union Pacific Resources (UPR) at Ladder Creek, the helium extraction and liquefaction plant that he helped design and build. After completion in 1998, Ladder Creek was sold one year later to DCP Midstream, which is when Johnson left the plant.

“Union Pacific Resources owned both the plant and the natural gas wells feeding the plant at the time Ladder Creek was commissioned,” Johnson said.

“They got in financial trouble—not because of the helium plant, but because of other commitments they had made. In order to raise capital, they sold all of their gas plants to Duke Energy, which spun off its natural gas business into a separate public company that was renamed DCP Midstream. To finish the divestiture, UPR sold all of their natural gas production to Anadarko Petroleum in a separate deal.”

Johnson continued, “That split the resources: the production was with one company, the plant with another company. The contracts we had at UPR economically favored the plant, which was a $100-million investment that had to be recovered. The problem going forward was that the economics were very poor for the natural gas producers, so these old contracts needed to be rewritten to attract more drilling and field development. The revenues from helium needed to be reallocated into a fair, win-win deal and that just never happened. The result for the next 20 years was that the area producers were not incentivised to drill helium-rich gas wells.”

Johnson, who began his career as a reservoir engineer at Exxon in Texas in 1985 and was a senior executive in the midstream industry much of his career, returned just in time, as the plant was set to be shut down in January. Johnson and his group closed the transaction to purchase Ladder Creek on December 17, 2019.

“It was in my fantasy mind for years to take over Ladder Creek, but I never had the resources or opportunity to be able to acquire the plant,” Johnson said.

“But in 2019 a series of events enabled us to acquire it. Because I didn’t have a big company behind me, the main thing that got me in the door to make a bid for the plant was my prior history with the asset.”

During the two decades since Johnson’s departure from Ladder Creek, he has lost none of his passion for the plant or his belief in its full potential. At the same time, helium prices rocketed by approximately ten times.

Ramping up production

Source: Tumbleweed Midstream

Ladder Creek Helium Plant

The plant, located just west of Cheyenne Wells in Colorado, separates helium from the natural gas stream and liquefies it for sale to large industrial gas providers, chiefly Air Liquide. Ladder Creek separates and processes helium for natural gas producers operating in eastern Colorado and western Kansas. Those are independent companies that produce helium-rich gas from multiple formations including the Morrow, Mississippian, Marmaton, Chase and Council Grove.

Ladder Creek, which has over 700 miles of gathering pipelines, has the capacity to extract and liquefy 1.5 million cubic feet of helium per day (MMcf/d), with extraction and liquefaction to purity levels of 99.999%. Over the summer, Tumbleweed ramped up its helium production by a factor of four.

“We have more than quadrupled helium production out of the facility and that’s just grabbing some low-hanging fruit,” Johnson said.

“There’s a lot of resource development opportunities here. The plant is currently processing about 12-13 MMcf/d. Since we’ve come in and are focused on rewriting contracts that are much more favorable to gas producers, we believe we will reach the plant’s current capacity of 38 MMcf/d by the end of 2021. After that we will be in position to increase to the full expanded capacity of 57 MMcf/day by the end of 2022.”

Johnson insists Ladder Creek can become a key domestic source for helium in the US for decades to come.

“These helium-rich natural gas resources are long lived, low decline, 25-35-year resources,” Johnson said.

“The helium is not limited to only one reservoir – other helium plays in other regions of the country have a single reservoir as the target. We have multiple horizons that have all proven to be helium producers across this portion of western Kansas and eastern Colorado. The Ladder Creek gathering system covers well over 1,000 square miles, and we are chasing opportunities all over our footprint, as helium concentrations average about 3% here.”

To that end, Johnson has reunited with former UPR geologist Mark Germinario, a geoscientist who Johnson worked with in the 1990s in the Ladder Creek area. While at UPR, Germinario’s geologic analysis in Cheyenne and Kiowa counties over seven years resulted in drilling over 150 wells targeting the Morrow Sandstone.

“Mark had studied and documented the helium-rich natural gas resources of the area. His work led to the decision by UPR to invest $100m to build the Ladder Creek Helium Plant,” Johnson said.

“We are very happy to have him on staff at Tumbleweed to assist new explorers and the local gas producers to uncover new helium-rich gas resources through new drilling and workovers.”

Johnson continued, “You won’t see major upstream producers in here but you do see very strong independents who have been exploring and drilling in this area for 40+ years. Almost every one of the producers we are working with has a long history with this area and they have experience where they have found helium but were never able to get it to market due to past contracts that did not provide them financial stimulus to do so. We’re changing the economics to make it worth their while.”

Expansion plans

Next year will see expansion before the plant reaches full helium producing capacity in 2022.

“In 2021, we expect to extract and process about 200 MMcf of helium from Ladder Creek, and our goal is to take that up to about 400 MMcf of helium in 2022, and sustain that production level after that,” Johnson said.

“We plan to become a significant domestic supplier of helium, producing over 10% of US supply, which is presently about three billion cubic feet (3 Bcf) per year. To get Ladder Creek to the 400 MMcf annual production level, we are looking at a plant expansion next year, but our expansion plan is very simple,” Johnson said. “The plant and the equipment are designed to process up to 57 million cubic feet of natural gas per day. All I have to do is install one gas compressor on my residue gas stream and we effectively go from a 38 MMcf/d plant to a 57 MMcf/d plant. It’s a very economic expansion.”

Larger helium sources around the globe are due to come on stream soon, but Johnson says Ladder Creek is well-suited to serve North American customers from its central US location.

“There’s a lot of talk about new sources, the Russian helium coming on, and Qatar, but if you watch the news, there is a potential for geopolitical risk with the helium coming out of Russia,” Johnson said. “The Qatar helium is a byproduct of LNG, so their helium production will be affected by the ups and downs of the LNG markets. A lot of people are excited by the prospect of a new domestic source of helium. Our plant is centrally located in eastern Colorado, so from the logistical standpoint of sending trucks to collect and transport domestic helium to markets in the US, it’s very well located.”

Tolling

Source: Tumbleweed Midstream

Ladder Creek

In addition to extraction and liquefaction of raw helium from wellhead gas, Tumbleweed offers producers that separate gaseous helium from their own gas stream the opportunity to use the helium tolling service at Ladder Creek. Helium is trucked to the plant in high pressure tube trailers, and Tumbleweed then purifies it to end user specifications and super-cools it to liquid form for transport to market.

“We are up to four tolling customers now,” Johnson said.  “Currently tolling volume is a little bit lower due to Covid, but we expect to be tolling about 10 million cubic feet per month when the industry gets back to normal. We have tolling agreements with Praxair, Air Liquide, The Weil Group and North American Helium.”

Overall, Johnson expects helium demand to recover to pre-Covid levels.

“We sell 100% of our native helium,” Johnson said. “There have been zero curtailments. The drop-off in helium demand during Covid is manufacturing related, because a number of manufacturers have shut down plants or reduced their own product output. I expect helium demand to snap back, and the shortfall in helium supply to return once the computer tech, medical and other industries dependent on helium resume their previous manufacturing levels.”

With the pandemic’s impact on helium demand, experts have called the global helium shortage over. Johnson is not so sure, and he says Ladder Creek will be ready to play a significant role in US domestic helium supply by the end of 2021.

“I think once business get back to normal, the helium shortage will reappear,” said Johnson. “Until new supplies are there, our plant can take a big bite out of a 600 MMcf a year shortage. At 400 MMcf of helium per year, Tumbleweed will be able to supply most of the shortfall starting in 2022, and we expect to sustain that level well into the future. My partners and I feel blessed and honoured to have been in the right place at the right time to make this dream happen.”