Midstreamers in the Energy Transition

In the early days of the Shale Revolution, merger-and-acquisition activity in the midstream sector was happening at a frenetic pace. That frenzy peaked with crude oil prices in 2014, then petered out over the next five years before hitting bottom in COVID-impacted 2020, when abysmal demand and commodity pricing hampered prospects for the production and transportation of oil, natural gas and NGLs. In those dark days, it seemed the only deals getting done were for bulk orders of hand sanitizer and toilet paper from Amazon. Now, with energy prices soaring and energy companies regaining some of their pre-pandemic luster, the pace of deal-making in the oil patch in 2022 looks poised to maintain the momentum that carried through the end of 2021. But buying or marketing midstream assets isn’t nearly as simple as ordering through your Amazon Prime account. Considerable effort is put into the strategy of selling and the diligence of purchasing and, for the uninitiated, the process can be daunting. In today’s RBN blog, we continue our series on midstream dealmaking with a look at what to expect in a sales process.

Any time there’s a step-change in technology, it presents intrepid industrialists with tremendous opportunities. Just looking at U.S. history, this has played out many times, with railroads, oil, automobiles, computers, and the internet being a few obvious examples. The Shale Revolution provided significant opportunities of its own, not just for the savviest producers but for midstreamers who jumped at the chance to develop the pipelines, gas processing plants, fractionators, and other infrastructure that was desperately needed to transport and process rapidly growing volumes of crude oil, natural gas, and NGLs. Master limited partnerships (MLPs) led the way, boosted by their advantaged access to capital, but they got an important assist from private-equity-backed developers, who were willing to take big risks in the hope of creating successful businesses. In today’s RBN blog, we continue our look at midstream dealmaking — and midstreamers’ prospective role in the coming lower-carbon economy — this time with a focus on the private equity (PE) side.

The Shale Revolution created an unprecedented need for midstream infrastructure of every sort — gathering systems, processing plants, storage hubs, takeaway pipelines, fractionators, export terminals, and more — all with the aim of connecting new hydrocarbon supply to demand. Throughout the 2010s, the scope and urgency of this midstream build-out opened up tremendous opportunities for the master limited partnerships, private-equity-backed developers, and other entities with the management skills, financial wherewithal, and dexterity to make these massive projects happen. Now, much of the Shale Era’s required new infrastructure is in place — and COVID and ESG have slowed new-project development to a crawl — putting many MLPs in a bind and leaving private equity firms to wonder where they should invest their money next. Well, there may be an even better set of new opportunities on the horizon — all related to the coming energy transition — and, as it turns out, midstream developers with hydrocarbon experience are uniquely positioned to lead the way. In today’s RBN blog, we discuss how the project-development model that drove the midstream sector’s growth over the past decade is poised for potentially lucrative re-use in the 2020s and beyond.