The ATEX Express Picks up Another Rider
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Rex Energy (NASDAQ: REXX) has entered into a 15-year transportation agreement with Enterprise Products Partners (NYSE: EPD) to become an anchor shipper of ethane on their ATEX Express pipeline. The Appalachian-to-Texas Express pipeline will connect MarkWest’s (NYSE: MWE) Houston fractionation facility just outside of Pittsburgh to Enterprise’s Mount Belvieu NGL storage facility. Under the terms of the contract, Rex will send 3,000 barrels of ethane per day beginning in 2014. This will be increased over time to 11,000 barrels per day in 2017 through the end of the contract.
Rex becomes another anchor shipper on the pipeline joining both Chesapeake (NYSE: CHK) and Range Resources (NYSE: RRC). The volume being shipped by Rex will dwarf that of their larger peers who are shipping 75,000 and 20,000 barrels of ethane per day respectively when the pipeline comes online in 2014. The pipeline has an initial capacity of 125,000 barrels per day and is quickly filling up.
This is an important step for Rex and on their third quarter earnings call CEO Thomas Stabley said: “This agreement gives us tremendous optionality as it opens up various markets for us to sell our ethane.” Not only does it open up ethane produced in the Marcellus, but a portion of the committed volumes will be coming from their Utica prospects in Ohio. Ethane has been a trapped commodity in the Marcellus, and the ATEX is an important development in getting this ethane to the Gulf Coast ethane markets.
Access to markets is an important and often overlooked aspect of energy production. As it stands, Rex is shipping their Marcellus ethane though MarkWest’s Houston plant. From there, they will have options as the plant provides them access to both the Mariner East and West projects. Going west will take ethane to the Canadian petrochemical market of Sarnia while going east will give them access to either the east coast petrochemical market or access to export markets. However, the big market for ethane is the Gulf Coast, and this agreement gives Rex access to that major market.
Until now, that access has been limited due to the sparce infrastructure in place for producers in the Marcellus and now the Utica plays. That's why it’s imperative that drillers like Rex, Chesapeake and Range sign on early to secure transportation access. This access is critical as it reduces transportation costs to a more reasonable number. For example, Range secured a $0.145 a gallon rate when they signed onto the ATEX Express. Costs can range upwards of $0.25 a gallon or more to get ethane to the Gulf Coast. Further, until that pipeline comes online, the only direct way to access that market was by train or truck, both of which are much more expensive ways to ship.
This is an important agreement for Rex. It provides them with important access to the Gulf Coast petrochemical market for their ethane. It’s also an important deal for Enterprise as this “take-or-pay” contract locks in Rex either use the capacity or pay Enterprise a total of $356.4 million over the life of the contract. One of the draws of the midstream industry is the stability of their earnings that these contracts provide.
Both companies offer an interesting take on investing in our domestic energy industry. Investors interested in the upside of natural gas and NGL’s should look at the tantalizing position of Rex Energy. Meanwhile, those investors who prefer stability and income will do very well in midstream companies like Enterprise.
latimerburned owns shares of Enterprise Products Partners L.P. The Motley Fool has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, short JAN 2014 $15.00 puts on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Motley Fool newsletter services recommend Enterprise Products Partners L.P. and Range Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.