Evaluating midstream companies—their assets, their value, their prospects—is a complicated task. It’s not enough to rely on the public face that companies put forward; typically, they highlight their strengths and minimize their weaknesses. To gain a fuller understanding of midstreamers, you need to poke around, consider their individual assets, and assess the status and outlook of the various production areas they serve. Asset location matters for a lot of reasons, but mostly because midstream infrastructure serving a thriving basin—the Permian and Marcellus, for instance—will contribute a lot more to a company’s bottom line than assets serving an area in steep decline. Today we conclude a blog series that highlights key takeaways from East Daley Capital’s new, detailed assessment of more than 20 U.S. midstream companies.
When you examine the assets, contracts and other details of a midstream company using a fine-toothed comb, you can gain a fuller, more useful understanding of the firm’s value and growth prospects. With such a thorough analysis, one thing that becomes clear is that vertically integrated midstreamers—those with interconnected processing, pipeline, fractionation and storage assets—tend to do better than those whose facilities are scattered and disjointed. Why? Because by controlling the midstream value chain—all the way from wellhead to end-user—they flow product through multiple assets, filling capacity and gaining revenue each step along the way. Today we continue our review of highlights from a new East Daley Capital report that examines the inner workings of more than 20 U.S. midstream companies.
Accurately assessing the value of—and prospects for—a midstream energy company requires a deep, detailed analysis that considers the firm’s individual processing plants, pipelines, storage and other assets; asset location and the degree to which the assets complement each other; and the underlying contracts that generate revenue. Do less, and you may be getting a pig in a poke. It’s true, things are definitely looking up in the midstream sector, but that hardly makes every midstream company a winner. Today, we review highlights from a new East Daley Capital report that shines a harsh, bright light on the inner workings of more than 20 U.S. midstream companies.
The recently announced combination of DCP Midstream LLC and DCP Midstream Partners LP creates the nation’s largest natural gas processor and natural gas liquids producer at what may be a particularly opportune time. The newly formed DCP Midstream LP, operating as a master limited partnership, owns 61 gas processing plants with a combined capacity of 7.8 Bcf/d—enough to process more than 10% of current U.S. production—as well as 12 fractionation plants, 59,700 miles of gas gathering pipelines and 4,600 miles of NGL pipelines. Better yet, many of these assets serve some of the U.S.’s most prolific and promising production areas, including the Midland and Delaware basins within the Permian; the Denver-Julesburg (DJ); and the side-by-side SCOOP and STACK plays. In today’s blog, we review the combined entity’s assets and prospects for growth in what soon may be happier times for NGL processors.
Change continues to come fast and furious to midstream MLPs, with no master limited partnership facing a bigger shift than MPLX. MPLX LP, formed in 2012 by Marathon Petroleum Corp. (MPC), is no stranger to transformation. In 2015, MPLX acquired MarkWest Energy Partners for $14.7 billion, a move that in one fell swoop made the merged entity the fourth-largest MLP in the U.S. In October 2016, Marathon announced an aggressive “dropdown” strategy that will provide MPLX with additional assets that will generate about $1.4 billion in annual earnings by the end of 2019. MPLX also has a significant capital investment program that allocates $2.3-$2.8 billion to build out gathering and processing infrastructure and logistics and storage facilities in Appalachia and Texas. Today, we review our latest Spotlight analysis of one of the nation’s largest MLPs.
The past production profiles of the ten companies in RBN’s Gas-Weighted E&P peer group are dramatically different from the Oil-Weighted and Diversified U.S. E&Ps, boosting production by over 18% from 2014 to 2015, while the output of the other two peer groups was virtually flat. The group as a whole finally put on the brakes in early 2016 because of mounting debt and persistent low gas prices, cutting capital investment by 49% to dampen production growth to 4%. However, a small group of producers with solid balance sheets and strong hedging protection continue to target double-digit output growth. And with gas prices over $3.00/MMbtu, more growth is on the way. In today’s blog we discuss 2016 capital spending and production for our representative group of E&Ps whose operations are primarily focused on natural gas.
A group of 15 diversified exploration and production companies we have been tracking collectively has slashed capital expenditures by 70% since 2014, but so far the cumulative effect of these spending cuts has been only a 5% decline in production. Now, several of these E&Ps––especially those targeting the Permian Basin and the SCOOP/STACK plays––are planning capex increases and/or expecting production gains. Today we discuss 2016 capital spending and production for a representative group of E&Ps whose operations are roughly balanced between oil and natural gas.
The group of 21 liquids-focused exploration and production companies we have been tracking plans to cut capital expenditures by half in 2016, after a 42% decline in 2015. However, capex for this “oil-weighted” E&P peer group is apparently bottoming out—their mid-year guidance was only 2% lower than their original 2016 estimates. Even with deep cuts in capital spending, the group expects production to fall only 7% in 2016, and those estimates have been revised higher from the initial 2016 guidance. Also worth noting: Pure Permian Basin players, the most optimistic companies in the peer group, are cutting capital spending by only 19% and are expecting a 12% gain in production. And with Apache Corp.’s announcement earlier this week of a huge discovery in the Permian’s Southern Delaware Basin, the market is definitely making a turn. Today we discuss 2016 capex and production for a representative group of E&P companies whose proved reserves are more than 60% liquids.
Enable Midstream Partners stands at a crossroads. It has great assets –– natural gas gathering and processing operations in the Anadarko, Arkoma, and Ark-La-Tex basins; a crude oil gathering system in the Williston Basin; and interstate/intrastate gas pipelines that ship natural gas from its gathering regions to the Texas Panhandle and Illinois. The company also has an excellent position in gathering systems and processing plants in the prolific STACK and SCOOP plays in Oklahoma. But everything is not rosy. Earnings from STACK/SCOOP are being offset by production declines in its other areas of operation. On top of that, CenterPoint Energy, which owns 55.4% of Enable’s limited partnership units, is seeking to divest its shares, which would bring a new majority owner into the picture. In today’s blog we review our latest Spotlight analysis.
In their second quarter 2016 earnings announcements, North American exploration and production companies (E&Ps) announced relatively minor changes to the steep reductions in 2016 capital budgets they unveiled around the first of the year. Total 2016 “finding and development” spending for 46 leading U.S. producers was an estimated $41.0 billion, down 51% and 70% from investment in 2015 and 2014, respectively, and slightly lower than the $41.9 billion forecast for 2016 spending in year-end 2015 announcements. The second-quarter reports over the past few weeks also confirmed the initial guidance of a 4% production decline in 2016 after 7% and 6% increases in 2014 and 2015. However, as we discuss today, a look behind the headline numbers indicates that cuts in capital expenditures (capex) look to have bottomed out, and that the industry may be poised for a turnaround in drilling activity later this year into 2017.
On Friday of last week, two more large E&Ps filed for Chapter 11 – Ultra petroleum with $3.8 billion in unsecured debt and Midstates Petroleum filing with a $2 billion debt-for-equity swap deal. Over the past 18 months there have been 65 E&P bankruptcies – mostly small companies, but nine companies make up 75% of the $28 billion in total debt exposure of all of these firms. This chaos in the oil, gas, and NGL markets is having all kinds of financial and strategic ramifications. One of the consequences of all of the turmoil could be a wave of asset sales, demands for contract restructuring, and more bankruptcy proceedings. But there can be some real opportunities in all this chaos if you know what to look for, understand where the needs and pitfalls can lie, and especially to recognize that “the sun’ll come up tomorrow.”
General Partners Phillips 66 and Spectra Energy control midstream Master Limited Partnership (MLP) DCP Midstream Partners (DPM). The partnership owns midstream transportation and processing assets along the natural gas and natural gas liquids (NGL) supply chain. Similar to many MLPs its Limited Partner unit price has declined by more than 50% in the past year. Despite exposure to difficult market conditions in the Eagle Ford and East Texas, a strong performance from the NGL logistics segment is expected to propel a 20% gain in net income between 2015 and 2017. Today we review our latest spotlight analysis report on DPM.
Without the use of corporate structures called Master Limited Partnerships (MLPs) the midstream infrastructure build out that helped make the U.S. shale revolution possible over the past 5 years would have taken far longer to gain traction. MLPs were very successful as the market grew and high prices encouraged new oil and gas production. But along the way some of the businesses these structures were applied to crossed the line from toll-road fee based infrastructure into exposure to commodity prices. For this reason and others, today MLPs are struggling to attract growth capital in a low price environment. Today we conclude our series analyzing the future of MLPs.
For the past decade or more, master limited partnerships (MLPs) have been one of the most popular forms used by energy companies to capitalize themselves and one of the most rewarding for their investors. These investments offered income, in most cases steadily growing, at a time of historically low interest rates. They also offered capital appreciation as the sector more often than not was one of the best performing in terms of equity returns. So what explains the rapid collapse in value that has been experienced over the past few months? Today in Part 2 of RBN’s series on MLPs, we delve further into that question, looking at Incentive Distribution Rights (IDRs) and our friends at Alerian provide a list of 118 MLPs including the “IDR splits”.
It’s hard to imagine how the massive build out of pipelines and processing plants required to deliver shale hydrocarbon production to end use markets in the past 5 years could ever have occurred without the corporate structures known as Master Limited Partnerships (MLP’s). These tax-efficient vehicles financed shale infrastructure by selling partnership units to investors that offered income in the form of cash distributions as well as growth from increasing unit prices. But the leading Alerian AMZ Index of MLP market capitalization fell 46% from August 2014 to December 31, 2015 in the wake of the oil price crash. Today we begin a series looking at past success and future prospects for MLPs.