The Shale Revolution created enormous opportunities for U.S. midstream companies. But opportunities are only that. It’s what individual midstreamers did with those opportunities through the 2010s — the decisions each made on where to invest and what to invest in — that will help determine how well they will do over the next decade and beyond. And the best way to assess the wisdom of these investments is to examine them one by one, and consider their locations, their exposure to risk and their potential for growth. Today, we discuss highlights from the newly released company-by-company portion of East Daley Capital’s “Dirty Little Secrets” report.
A few weeks ago, in Farther Up the Road, we said that the midstream sector had been on a development spree for much of the last decade, with new or expanded everything — pipelines, gas processing plants, fractionators, storage facilities, liquefaction trains, export terminals and more — being built to keep pace with production gains. But after peaking in 2019, the build-out frenzy is slowing in 2020, and the near- and mid-term fate of midstreamers is largely tied to whether they placed good bets on the infrastructure they already developed or are finishing up this year or next. We also looked at midstreamers’ expanded efforts to invest in existing projects (rather than building new ones); their stepped-up plans to divest non-core assets (in order to provide funding for acquisitions in their focus areas, and to reduce debt); and their heightened interest in employing the joint-venture (JV) approach to new project development.
Today, we turn our attention to a few of the midstream companies that, upon a detailed examination of their assets, stand out in one way or another from their peers. We begin with Enable Midstream Partners, a master limited partnership (MLP) with extensive gas-related midstream assets in Oklahoma, Louisiana and neighboring states. While Enable’s major exposure to the Anadarko and Ark-La-Tex production areas might raise concern — since production there has leveled off and has even been declining of late — an asset-by-asset examination of the midstreamer’s holdings indicates that drilling-and-completion activity by Continental Resources and other acreage committed to Enable’s gathering systems, processing plants and takeaway pipelines is expected to remain robust. Furthermore, the company has managed to largely offset rate and re-contracting risk on its Enable Gas Transmission (EGT; purple lines in Figure 1) and Mississippi River Transmission (MRT; light-blue lines) gas pipelines via new contracts, economic expansions and rate cases.
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