Enterprise, MarkWest, DCP, Anadarko Join Forces on Texas Pipe
A joint venture to expand the Panola Pipeline was finalized on February 24, 2015, according to a press release by operator Enterprise Products Partners (ticker: EPD). Per the terms, EPD will retain a majority interest of 55% of the pipeline, while DCP Midstream Partners (ticker: DPM), Markwest Energy Partners (ticker: MWE) and a subsidiary of Anadarko Petroleum (ticker: APC) each own a 15% interest.
The Panola Pipeline currently transports natural gas liquids (NGLs) 181 miles across Texas from Carthage to Mont Belvieu. The 60-mile expansion will increase takeaway capacity by 50 MBOPD and is expected to be operational by Q1’16. EPD closed its open season on January 22 after receiving ample shipping commitments from producers located in the Haynesville and Cotton Valley regions.
Enterprise Expands its Empire
Enterprise Products Partners snapped up Oiltanking Partners in November 2014 and is on the short list of well-positioned buyers in the M&A market. The $6 billion acquisition of Oiltanking Partners added the second-largest storage provider and access to 23 connection points to EPD’s portfolio, which now consists of more than 51,000 miles of pipeline and 24 natural gas processing plants. EPD owns interests in 16,730 miles of NGL pipelines, not including the expansion of Panola and other projects.
Many analysts believe EPD may still be active on the M&A front in the low commodity environment, citing its attractive balance sheet and low cost of capital. The company’s capital intensity (defined as the percentage of EBITDA necessary to maintain production) is 59%, meaning the remaining 41% of EBITDA can be reinvested for shareholders or used to strengthen the balance sheet. The median asset intensity of the 56 Master Limited Partnerships (MLP) in EnerCom’s MLP Weekly is 80%, leaving EPD with plenty of room for growth compared to its peers.
NGL Market Expected to Rebound
Even though EPD’s NGL division fractionalized record volumes in 2014, its gross operating margin declined on a year-over-year basis in its pipelines and services segment. In the company’s Q4’14 conference call, management said it was encouraged with the company’s results despite the market downturn and is currently focused on increasing its NGL capacity.
EPD also said it elected to reject ethane, a component of NGLs, due to the price environment. The company said NGL prices at Mont Belvieu were only $0.74/gallon in Q4’14, compared to $1.08/gallon in Q4’13. Approximately 40% of its NGLs come from either crude or condensate.
Anthony Chovanec, EPD’s Vice President of Strategy, said he and his colleagues expect oil and gas volumes to grow in 2015. “In a $60 to $65 [per barrel] environment, both of those is going to change,” he said in the call. “We do not see that growth going to zero or that trajectory turning around. And that’s not what we’re seeing or hearing from our customers. When you see them cutting their budgets, they’re high-grading just like you would expect them to and keeping that curve somewhat up lower on that curve.”
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