When you examine the assets, contracts and other details of a midstream company using a fine-toothed comb, you can gain a fuller, more useful understanding of the firm’s value and growth prospects. With such a thorough analysis, one thing that becomes clear is that vertically integrated midstreamers—those with interconnected processing, pipeline, fractionation and storage assets—tend to do better than those whose facilities are scattered and disjointed. Why? Because by controlling the midstream value chain—all the way from wellhead to end-user—they flow product through multiple assets, filling capacity and gaining revenue each step along the way. Today we continue our review of highlights from a new East Daley Capital report that examines the inner workings of more than 20 U.S. midstream companies.
Things are definitely looking up in the U.S. midstream sector, but that doesn’t mean that all midstream companies in the horse race will gain equally—in fact, it’s a given that they won’t. To separate the win-place-and-show companies from the middle of the pack and the real laggards, what’s needed is a detailed, muzzle-to-tail inspection of midstreamers’ individual assets, the production areas they serve, the take-or-pay and other contracts that provide their revenue, and how their assets work as a team (or don’t). As we said in Part 1 of this blog series, for racehorse owners and the folks who run midstream companies alike, the aim (as the old song goes) is to “accentuate the positive, eliminate the negative … and don’t mess with mister in-between.” To get the complete picture of a midstream company’s value and prospects, you’ve got to factor in the positive but also ferret out the negative and the in-between, something our good friends at East Daley Capital have done in Dirty Little Secrets—Lifting the Covers on Midstream Energy Company Risk,” which provides company-by-company analyses of 23 midstreamers as well as lessons learn from those detailed reviews. (More information on the report, which runs more than 100 pages, is available here.)
Read the full RBN Energy article here.