Utica Shale Midstream Players to Watch
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One alternative method of playing the onshore oil and gas boom in the United States is through investing in companies building out infrastructure needed by operators to gather, transport and process production from these fast growing plays.
Utica Shale
The Utica Shale is an emerging oil and gas play in Ohio and Pennsylvania and has seen a surge of development over the last year as operators look for oil and liquids plays in the onshore United States. The Ohio Department of Natural Resources Division of Geological Survey reported that 321 permits to drill into the Utica Shale have been issued as of Aug. 3.
The INGAA Foundation estimates that the industry will spend $2 billion annually over the next 25 years on new liquids pipelines and build an average of 1,200 miles of new liquids pipelines per year. Some of this spending will be directed to serve the needs of operators in the Utica Shale.
NEXUS Gas Transmission System
Spectra Energy (NYSE: SE), Enbridge (NYSE: ENB) and DTE Energy (NYSE: DTE) just announced a joint plan to build the NEXUS Gas Transmission system to serve the Utica Shale. The system will have the capacity to transport one billion cubic feet per day of natural gas from the Utica Shale in Ohio up into Michigan, where it will connect with an existing pipeline system and reach the Ontario, Canada market. The companies expect the NEXUS Gas Transmission system to be operational by late 2015.
Acquisitions
Crosstex Energy, L.P. (NASDAQ: XTEX) recently closed on the purchase of Clearfield Energy, Inc., a private oil and gas company, for $210 million. The acquired assets are positioned to serve the Utica Shale and include a crude oil barge loading terminal on the Ohio River and a rail loading facility in the area with crude oil capacity of 28,000 barrels per day.
Crosstex Energy, L.P. already plans to increase the capacity of the rail loading facility to 56,000 barrel per day by the end of 2012. The company also acquired other assets in the purchase of Clearfield Energy including crude oil pipelines, salt water disposal wells, storage facilities and a trucking fleet.
Crestwood Midstream Partners LP (NYSE: CMLP) has made a number of major acquisitions over the last few years and established a large midstream footprint in the United States. The company’s assets serve the needs of operators in the Barnett Shale, Granite Wash, Fayetteville Shale, Marcellus Shale and other onshore plays. Crestwood Midstream Partners LP is still looking to grow more and is considering approximately $1 billion of future investments in midstream infrastructure in the Utica Shale and other areas.
Private Equity
Williams Partners L.P. (NYSE: WPZ) and several private equity firms plan to invest $800 million to build out midstream infrastructure to handle production from the Utica Shale in parts of Ohio and Pennsylvania. The infrastructure will include gathering and processing facilities with a focus on areas that produce natural gas liquids and crude oil. The company’s share of the cost will be approximately $380 million.
Many companies have already started on the massive build out of midstream infrastructure needed to handle growing production from the Utica Shale and investors that want exposure to the energy sector should consider whether these names have a place in their portfolio.
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