Following the attack on Saudi Arabia oil infrastructure several midstream companies with high leverage to liquids’ prices stand to see significant upside including Targa (TRGP), DCP Midstream (DCP) and NuStar (NS) if prices elevate due to global supply-side risks.
Centennial, CO – September 18, 2019 – East Daley Capital, an energy data and insights provider that is redefining how markets view risk for midstream and exploration and production (E&P) companies released their analysis on the impact of the recent attack on Saudi Arabia’s oil infrastructure and the resulting crude price spike – WTI ~14% on Monday. Opportunity exists for several U.S. midstream companies including Targa (TRGP), DCP Midstream (DCP) and NuStar (NS) if liquids prices are elevated. The continued commodity price spikes caused by markets placing a premium on geopolitical risks may also support more go-private transactions and buyouts at premium valuations compared to the publicly traded market.
Crude oil prices spiked ~14% on Monday following attacks on the world’s largest crude processing facility in Saudi Arabia, which took ~5 MMb/d of production temporarily offline (~5% of global supply). The attack and corresponding spike in price sent energy names higher, with the S&P Oil and Gas E&P ETF (XOP) soaring over 10% and midstream names up ~2% on the day.
While E&Ps certainly have more leverage to higher liquids prices, midstream names are also impacted via commodity exposure (POP/POL contracts) and higher future throughput across their value chains. Given the proven potential for higher liquids prices vis-à-vis geopolitical risk premiums, East Daley ran an asset-level price scenario based on $70 oil through 2023 to highlight the potential upside for several midstream names significantly levered to liquids prices.
“East Daley believes that geopolitical risk premiums can also fuel an emerging trend in the midstream sector, namely the growing disconnect between public market valuations and go-private/buyout valuations,” said Justin Carlson, Co-Founder and Chief Strategy Officer at East Daley Capital. “Energy Transfer’s (ET) announcement just this week that it plans to acquire SemGroup (SEMG) poses a perfect example of this new phenomenon.”
Contact East Daley to request a copy of our latest Snapshot report East Daley’s Geopolitical Risk Premiums and What They Mean for U.S. Midstream Companies.