Pipe Dreams: Parts 1 & 2

SPECIAL REPORT from East Daley: Producers to Gain Significant Cash Flow As Pipeline Contracts Expire

During the U.S. natural gas boom of 2007-10, an unprecedented amount of capital went into the development of new pipeline construction. Many E&Ps signed up for 10-to-15-year firm transportation contracts on the new pipelines. Due to the new energy landscape, East Daley believes many of those contracts will not be renewed. The expected contract attrition in the U.S. natural gas market creates both challenges and opportunities. For midstream companies, it could mean cash-flow trouble. For producers, it could mean additional cash flow to invest into other areas of the business.


Pipe Dreams Parts 1 & 2 is a special report from East Daley that analyzes the firm transportation contracts of many of the largest U.S. E&P and midstream companies. Using their current and future production and transportation profiles, analyzing the market spreads and where the companies are allocating their capex, all of their firm transportation contracts were reviewed and risked. This report shows how producers and midstream companies could be impacted as these contracts begin to roll off in the coming years.


Key takeaways from Part 1: E&P Money Tree


  • Over the next eight years, 10 of the largest U.S. producers are expected to shed over 8.5 Bcf/d of contracted capacity and $1 billion of annual take-or-pay commitments.
  • Anadarko Petroleum and Southwestern Energy have the largest amount of upside from contract turnback for a combined $403 million.
  • The resulting effects on midstream companies is unevenly weighted, with $757 million in lost revenue for eleven midstream companies and $485 million in upside for five.
  • The 10 producers selected for this report account for 65% of the most important contract expirations in the next eight years and are a key piece of the pipeline risk highlighted in part two of Pipe Dreams.

  • Key takeaways from Part 2: Turning Over A New Leaf


  • Recent shifts in natural gas supply and demand will significantly reduce contracted volumes and rates on legacy pipelines, leading to a forecasted ~$825 million reduction in legacy contract annual EBITDA
  • East Daley quantifies interstate pipeline risk which allows readers to combat the idea that pipelines are “toll roads”, whose income is risk free.
  • “At risk” contracts are not evenly spread among midstream companies. Companies like KMI, ETP, and BWP are forecast to see their overall interstate pipeline EBITDA shrink over $100 million annually, while other companies are poised to grow.
  • The most risky pipelines like Fayetteville Express, Gulf Crossing, ETC Tiger, and Midcontinent Express are facing serious rate and volume risk which we forecast will reduce their combined EBITDA by $482 million annually.
  • Request More Information e&P Money Tree

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    Contact:

    John Lange

    jlange@eastdaley.com

    303-499-5940

    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.