The surge in crude oil production in the Permian is providing a much-needed uplift for midstream companies such as Plains All American Pipeline, Enterprise Products Partners and Magellan Midstream Partners.
Centennial, CO – April 24, 2018 – East Daley, an energy information and insights provider that is redefining how markets view risk for midstream and exploration and production (E&P) companies reports that the overall outlook is positive for most major U.S. oil and gas midstream companies. However, delays in Northeast natural gas pipeline projects and recent Federal Energy Regulatory Commission (FERC) tax policies are putting downward pressure on midstream companies with natural gas exposure.
“We see the U.S. midstream sector growing by 14% in 2018 versus 2017, which is great news for investors and midstream companies,” said Justin Carlson, VP and Managing Director, Research at East Daley Capital. “Permian crude oil and natural gas liquids production is really fueling the growth in the sector and 2018 looks to be a rebound year for many midstream companies. Now is a great time to look closely at midstream investment opportunities.”
The surge in crude oil production has translated to a quicker than expected ramp in volumes on Permian export pipelines. Many of the marginal growth barrels are charged the higher walk-up tariff rates providing a boost to the margin per barrel realized on throughput. Additionally, takeaway constraints have caused regional spreads from Midland to Cushing, Houston and the Louisiana Light Sweet hubs to widen significantly. The significant uptick in crude oil production benefits companies like Plains All American Pipeline (PAA), Enterprise Products Partners (EPD) and Magellan Midstream Partners (MMP), which East Daley has a more favorable view of versus consensus EBITDA estimates.
“Even though we see many midstream companies with natural gas exposure growing in 2018, delayed infrastructure projects in the Northeast and FERC’s recent announcement to changes in tax policies have put downward pressure on earnings expectations,” said Carlson. “Rover pipeline expansion delays, the Mariner East 1 shut down and Mariner East 2 project delays will cause lower throughput and cash flows for companies such as Antero Midstream, CNX Midstream and MPLX.”
East Daley recommends investors in midstream oil and gas companies to look closely at the details of the new FERC rulings and how those rulings apply to specific assets in midstream companies when evaluating risk. However, East Daley views the impacts of the FERC tax policies will have a modest downside risk on midstream companies EBITDA, with most companies ranging from 0-5% of EBITDA at risk potentially, even though outliers do exist.
About East Daley Capital Advisors, Inc. East Daley Capital is an energy information and insights provider that is redefining how markets view risk for midstream and exploration and production (E&P) companies. In addition to using top-level financial data to predict a company’s performance, East Daley delivers asset and commodity analysis that provides comprehensive, fact-based intelligence. Supported by a team of unbiased, experienced financial and commodity analysts, East Daley provides its clients unparalleled insight into how midstream and E&P companies operate and generate cash flow, in addition to commodity forecasting. East Daley uses publicly available fundamental data and intersects that data with a company’s reported financials to asset-level adjusted-EBITDA and distributable cash flow (DCF). The result allows for more informed portfolio decisions. Founded in 2014, the company is based in Centennial, Colorado.