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Houston midstream companies poised for growth on industry optimism

February 19, 2017

 

Now that the oil industry is out of 2016, several companies are closing the book on the year with their fourth-quarter releases and looking ahead with more optimism to 2017.

And even though many companies in the oil sector are clinging to lighter business models earned in the downturn in the form of reduced costs and lower capital spending, many are starting to push outward with organic growth once again.

One place where that can be seen is in the project slates of midstream companies anticipating volume growth out of U.S. oil production.

Houston-based Plains All American Pipeline LP (NYSE: PAA), for instance, has $800 million of capital expenditure budgeted for growth in 2017. It announced in late January that it agreed to a $1.2 billion acquisition of a gathering system in the northern part of the Delaware Basin, where it has found enough acreage dedication to support the deal.

“The Northern Delaware Basin is an area that is experiencing increased activity levels and significant industry investment,” Plains CEO Greg Armstrong said in a press release at the time. “We expect aggregate crude oil production on the dedicated acreage to double over the next two to three years, and we believe that overall Permian Basin crude oil volumes have the potential to grow as much as 50 percent or more during this same time period.”

Plains is also working on expansion projects for two of its pipelines — Cactus and BridgeTex. Plains jointly owns BridgeTex with Oklahoma-based Magellan Midstream Partners LP (NYSE: MMP).

BridgeTex will get a 100,000 barrel-per-day expansion to 400,000 barrels per day, expected to complete in the second quarter. That pipeline runs crude from Colorado City, Texas, to Magellan’s East Houston Terminal.

Cactus pipeline had an initial design capacity of 200,000 barrels per day, but Plains is expanding it to 390,000 barrels per day with an in-service date in the third quarter for the new capacity. Cactus carries crude and condensate from McCamey to Gardendale, both in Texas, and is part of one of the few pipeline networks taking crude from the Permian to Corpus Christi, Texas.

Plains’ 2016 revenue was $20.18 billion, down from $23.15 billion. Likewise, the company’s net income was $121 million lower at $127 million for the year.

Another Houston midstream company with organic growth in the works is Enterprise Products Partners LP (NYSE: EPD). Enterprise has been working on the its Midland-to-Sealy pipeline for years, but it announced during its fourth-quarter earnings call that the project will be 50 percent bigger at 450,000 barrels per day of capacity.

The decision came because of expectations for stronger Permian production numbers as the price of crude oil rises and stabilizes. CEO James Teague said during the company’s fourth-quarter earnings call that the project is already expected to approach 300,000 barrels per day in commitments.

“That’s not to say we’ve executed up to that level, but we’re pretty damn confident we’ll get there,” Teague said on the call.

Enterprise shed some revenue in 2016, according to SEC filings. Revenue fell from $23.67 billion in 2015 to $19.64 billion in 2016. Net income for the company held mostly steady, though, slipping down about $5 million to $2.55 billion for 2016.

 

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