Midstream Companies

Many leading energy companies have come to accept the reality that environmental, social, and governmental (ESG) matters are now front-and-center concerns to an increasing number of investors and lenders. Their challenge, of course, is that the hydrocarbon-based commodities they produce, process, transport, and refine are by their very nature prospective generators of carbon dioxide and other greenhouse gases that the ESG movement is targeting. What’s an energy company to do? For many midstream companies, the answer — for now at least — is to focus on minimizing the release of methane, carbon dioxide (CO2), and other GHGs from their gas processing plants, pipelines, storage facilities, and fractionators, and on switching to renewables to power their operations. Today, we continues our series with a look at how midstream companies are addressing investors’ and lenders’ concerns about the sector’s GHG releases.

Many of us need a break from natural gas market mayhem, rolling blackouts, and frozen pipes, so we’re turning to a very different topic — at least for a day. ESG, or more specifically the environmental part of the too-important-to-ignore environment/social/governmental movement. The fact is, for many investors, lenders, and others who give heavy weight to ESG in their decisions, the companies that produce, process, transport, refine, and/or export hydrocarbons are automatically suspect. At the same time, though, it is broadly understood that crude oil, natural gas, and NGLs remain essential commodities, and that it could take decades for economies around the globe to significantly reduce their dependence on them. So, where does that leave hydrocarbon-centric companies in 2021’s ESG-conscious world? Today, we continue our series on ESG issues and how they relate to players in the energy industry.

The run-up in crude oil prices the past couple of months has supported a rise in energy stock prices — since early November, the S&P 500 Energy Sector Index has increased by more than 40%. Yet, many investors, lenders and others remain wary of oil and gas companies, not only due to the energy industry’s historic volatility but also the unique social, political and financial pressures that hydrocarbon producers, midstreamers, and refiners face in demonstrating that they are addressing environmental, social, and governance issues. ESG has come to the fore in the U.S., Canada, and elsewhere, and will shape activity in the oil patch this decade and beyond, and energy companies that ignore it or only pay lip service do so at their peril. Today, we begin a series on the growing significance of ESG and how upstream, midstream, and downstream players are incorporating it into their strategies and operations.

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.

Last Friday (May 8, 2015), Baker Hughes data showed the Permian basin oil rig count up by two – suggesting that drilling may be picking up in West Texas. A week earlier at the end of April, Enterprise Products Partners (EPD) announced they are moving ahead with a new pipeline from the Permian basin to the Houston area – set to come online in 2017. The new pipeline will add 540 Mb/d of takeaway capacity and comes on top of 450 Mb/d being added in the Permian this year by the Plains All American Cactus and Energy Transfer Partners Permian Express II pipelines. Today we look at the new project and whether the incremental takeaway capacity is necessary.