The Daley Note: February 1, 2023
EnLink Midstream (ENLC) is poised to ride drilling and supply momentum on its Central Oklahoma (COK) G&P system, according to East Daley’s Financial Blueprint model. Rig activity in the Anadarko Basin remains strong, and the system’s contracts provide some protection if natural gas prices weaken.
In September 2022, East Daley highlighted increased rig activity on the ENLC - COK system that could eventually lead supply to overrun processing capacity, based on rig allocations in our asset model. Oil and gas prices at the time were at multi-year highs, fueling a surge in rig activity in all major US basins. Yet even with the recent drop in commodities, activity remains steady in the Anadarko and on the ENLC - COK system.
Currently, there are 86 rigs active in the Anadarko Basin, according to our Midstream Activity Tracker, led by operators such as Devon Energy (DVN) and Continental Resources (CLR). Rig counts in the basin have remained relatively flat through the second half of 2022 and in early 2023 despite the decline in commodity prices.
In our G&P System Analysis dashboard in Energy Data Studio, East Daley currently allocates 11 rigs to the ENLC – COK system (see figure). Devon Energy (DVN), Paloma Resources, and Citizen Energy III are the leading operators on the COK system.
The ENLC - COK system consists primarily of fixed-fee rates, so the sustained drilling activity in the Anadarko is a welcome development for EnLink. In our updated ENLC Financial Blueprint, East Daley projects EBITDA for the COK asset to grow by ~23% Y-o-Y in 2023.
For now, we forecast an average of just under 11 rigs on ENLC – COK through the end of 2023. At these rig levels, we model steady growth in volumes through 2025, eventually requiring an expansion in gas processing or an offtake agreement in mid-2023. Even if gas prices weaken in 2023, we expect EnLink to gain from fixed-fee rates as volumes expand. - James Taylor Tickers: CLR, DVN, ENLC.
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