Dirty Little Secrets

Dissecting the risk behind midstream energy companies

is often done with a sword rather than a scalpel. The complex nature of the business typically forces management teams to bucket assets together at a high level, diluting the ability to evaluate the impact of commodity price movements, contract renegotiations or the precise impact of the output from a single well. Perhaps the dirtiest little secret in the midstream energy space is that midstream energy companies, even large cap diversified companies like Energy Transfer Partners (ETP) and Kinder Morgan (KMI), can be dissected at a very granular level. Company reported segments can be subdivided by commodity risk, commodity risk by infrastructure, infrastructure by basin and basin into distinct assets. At its most granular level, assets can even be broken down by contract and counterparty. Dirty Little Secrets details 23 prominent companies in the midstream space by subdividing them into a detailed asset-level forecast. In doing so, dirty little secrets, both good and bad, come to light in the outlook for 2017 and beyond.

Key findings in the report include:

  • Ethane, Ethane, Ethane! It’s coming, it’s in Q4, it’s quantifiable and it will likely be joined by another new fractionator.
  • Liquefied petroleum gas (LPG) exports are overbuilt in the short term and terminal fees are dropping. If there is a storm, minimum volume commitments (MVCs) provide cover but not shelter.
  • New natural gas pipeline expansions will collide with legacy contract cliffs as the sector nears the verge of yet another shake down.
  • In the Permian Basin, horizontal wells drilled are at a new high and logging initial production rates 47 percent and 40 percent higher than 2014 for oil and gas. The degree of uplift across the midstream space will vary significantly.
  • The surge of growth in the Permian will usher in a new wave of crude oil expansions as the region quickly goes from too much to too little capacity in 2017.

East Daley Capital is an energy asset research firm

that is redefining how markets view risk for midstream energy companies. In addition to using top-level financial data to forecast a company’s performance, East Daley delivers asset-level analysis that provides comprehensive, fact-based intelligence. Supported by a team of unbiased, experienced research analysts, East Daley provides its clients unparalleled insight into how midstream companies operate and generate cash flow. East Daley uses publicly available fundamental data and intersects that data with a company’s reported financials to break midstream companies down to asset-level cash flows. The result allows for more informed decisions.