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Midstream Business is revisiting the companies that made the Top 10 cut of its 2018 Midstream 50 rankings. These companies are profiled here with updates on their earnings, key assets and capex plans.
All seem to be doing well, with revenues and market caps in the billions, and more to go as big capex projects loom ahead.
Along with the 40 other members of the list and their fellow midstream operators, these midstream giants will play leading roles in completing the needed buildout to overcome current bottlenecks hampering production from the nation’s major unconventional plays. Top-ranked Enbridge Inc. had projected a cool CA$7 billion alone in new 2018 projects.
Bringing this year’s Midstream 50 Top 10s back for an encore can provide further insight into trends, predictions and news to watch with these companies.
No. 1 Enbridge Inc.
- NYSE: ENB
- Share price as of Aug. 2: $35.66
The biggest news for this year’s top-ranked Midstream 50 firm was its merger with Spectra Energy in 2017 that enabled it to leapfrog from the No. 4 slot on the prior year’s list to the top of the heap. The company rose to No.1on its performance, which was “transformational,” according to CEO Al Monaco, who added that the Spectra acquisition helped Enbridge “rebalance our business mix with best-in-class natural gas transmission assets” and extend growth potential.
To that point, Enbridge’s major growth projects include Access Northeast Pipeline and Atlantic Bridge, supplying natural gas and NGL to New England and the Canadian Maritimes. It also is proceeding with replacement of its Line 3 from Hardisty, Alberta, to Superior, Wis., which the Calgary-based firm said ranks as “the largest project in Enbridge history,” worth CA$5.3 billion.
Second-quarter EBITDA was CA$3.17 billion, up from CA$2.58 billion in the prior-year quarter. The firm noted that in 2018, CA$7 billion of new projects are expected, with CA$800 million already brought online since year-end 2017. These included the “Stampede offshore oil lateral in the Gulf of Mexico and the Wyndwood and High Pine natural gas transmission expansions on the [British Columbia] Pipeline system,” it said.
“We’re very pleased with our strong financial results this quarter and the year is shaping up well,” Monaco said. “The results reflect strong operational performance across all of our core businesses, including the Liquids Mainline System where we moved record average volumes. We’re also seeing increasing cash flow from the more than $12 billion of new projects brought into service over the past year. The solid financial performance and diversity of growth from our recently acquired natural gas transmission and utility businesses, together with the continued realization of cost synergies, is clearly proving out the value of the Spectra Energy acquisition completed last year.”
No. 2 Energy Transfer Equity LP
- NYSE: ETE
- Unit price as of Aug. 2: $18.74
Energy Transfer kept its No. 2 spot on this year’s Midstream 50 list. In perhaps its biggest change, it looks to complete a major reorganization to streamline its complex organization.
In August, Energy Transfer Equity LP (ETE) and Energy Transfer Partners LP (ETP) announced a definitive agreement providing for the merger of ETP with a wholly-owned subsidiary of ETE in a unit-for-unit exchange.
In connection with the transaction, ETE’s incentive distribution rights (IDRs) in ETP will be canceled. The transaction, which was approved by both boards and conflicts committees, is expected to close in the fourth quarter, subject to approval by a majority of the unaffiliated unitholders of ETP and other customary closing conditions.
ETE currently owns the general partner of ETP.
Under the terms of the transaction, ETP unitholders—other than ETE and its subsidiaries—will receive 1.28 common units of ETE for each common unit of ETP they own.
When announcing the transaction, ETE said the deal is expected to provide significant benefits for the partnerships, including:
- Providing a premium to the current ETP common unit trading price while being immediately accretive to ETE’s distributable cash flow per unit;
- Improving the combined partnership’s equity cost of capital through the elimination of ETE’s IDRs in ETP, which in turn is expected to enhance the combined partnership’s cash accretion from investments in organic growth projects and strategic M&A following the closing of the transaction;
- Further aligning the economic interests within the Energy Transfer organization;
- Simplifying the overall structure, which will reduce complexity and improve transparency for investors; and
- Increasing cash distribution coverage and retained cash flow, which will allow the combined partnership to reduce its leverage ratio as well as reduce the need for equity issuances to fund organic growth.
“The transaction is expected to strengthen the balance sheet of the combined organization by utilizing cash distribution savings to reduce debt and to fund a portion of ETP’s robust growth capex program. The completion of major capital projects currently in progress is expected to continue to generate strong distributable cash flow growth for the combined partnership following the transaction. The partnerships expect to maintain investment grade credit ratings for the combined partnership,” it added.
Energy Transfer has an active 2018 capex program. Its Rover Pipeline, providing critical new capacity in the Marcellus and Utica plays, entered service earlier in the year’s first half.
No. 3 Kinder Morgan Inc.
- NYSE: KMI
- Share price as of Aug. 2: $17.67
The infrastructure giant has been particularly busy, forming a joint venture (JV) with upstream producer Apache Corp. to develop the Permian Highway Pipeline project, which it said will cost $2 billion and will transport 2 billion cubic feet per day (Bcf/d) of natural gas through 430 miles of pipeline from the Permian Basin’s Waha Hub to U.S. Gulf of Mexico and Mexican markets.
The project “is structured to provide unrivaled market optionality for Permian producers,” said Sital Mody, chief commercial officer of the Kinder Morgan Natural Gas Midstream unit. “By contracting for space on KMI’s extensive intrastate systems, the project will offer seamless nominations to the Katy and Agua Dulce market hubs; pipeline headers into LNG export facilities on the Texas Gulf Coast; multiple pipelines delivering gas into Mexico, including Valley Crossing, NET Mexico and KMI’s Border and Monterrey pipelines; and numerous other intrastate and interstate pipelines. Additionally, shippers on the project will be able to contract for additional transportation, storage and gas sales options with KMI, whose existing intrastate systems are directly connected to most end users along the Texas Gulf Coast.”
KMI has not been without its share of industry drama. Its Kinder Morgan Canada unit’s Trans Mountain Expansion project was sold to Canada’s federal government for CA$4.5 billion in the second quarter. This came after controversy erupted over the efficacy of the project.
Midstream Business contributor Markham Hislop reported in May: “While industry players universally applauded the deal, they also made it clear they are not happy about how the project became so precarious that the national government had to ride to its rescue. The Canadian Energy Pipeline Association said it is ‘deeply concerned’ that the Liberal government ‘needed to purchase the project for it to be built and to assert federal jurisdiction,’ according to CEO Chris Bloomer.”
Trans Mountain Expansion has been bitterly opposed by a coalition of First Nations, municipalities and environmental groups. But it was British Columbia’s government, led by Premier John Horgan, that has said it will use “every tool in the toolbox” to expand provincial jurisdiction for environmental protection in order to “protect the coast” from the planned increase in oil tanker transit that forced the federal government into the project.
In the U.S., KMI is still developing its Utica Marcellus Texas Pipeline (UMTP) project to move NGL out of Appalachia to the Gulf Coast.
For second-quarter financials, due to $749 million in non-cash impairments taken during the period, KMI reported a net loss to common stockholders of $180 million, despite generating second-quarter distributable cash flow (DCF) of $1.1 billion, an increase of 9% over second-quarter 2017. The company continued to fund all growth capital through operating cash flows with no need to access capital markets for that purpose, it said.
No. 4 TransCanada Corp.
- NYSE: TRP
- Share price as of Aug. 2: $45.38
The Calgary-based midstream giant announced in June that it would expand export capacity on its NGTL System, which takes natural gas from the Western Canadian Sedimentary Basin to downstream markets. The expansion cost $140 million, and shippers carried out agreements for 280 million cubic feet per day of service that will begin in 2021, a press release added.
TransCanada Corp. announced second-quarter net income attributable to common shares of CA$785 million, or 88 cents per share, compared with net income of CA$881 million, or CA$1.01 per share for the same period in 2017. Comparable earnings for second-quarter 2018 were CA$768 million, 86 cents per share, compared with CA$659 million, 76 cents per share for the 2017 period.
“With our existing asset portfolio benefiting from strong underlying market fundamentals and $28 billion of near-term growth projects including maintenance capex advancing as planned, earnings and cash flow are forecast to continue to rise. This is expected to support annual dividend growth at the upper end of an 8% to 10% range through 2020 and an additional 8% to 10% in 2021,” said Russ Girling, president and CEO. “We have invested approximately CA$10 billion in these projects to date and are well positioned to fund the remainder through our strong and growing internally generated cash flow along with a broad spectrum of financing levers including access to capital markets and further portfolio management activities.
“In addition, we continue to methodically advance more than CA$20 billion of medium- to longer-term projects—including Keystone XL, Coastal GasLink and the Bruce Power life extension agreement. Success in advancing these and/or other growth initiatives associated with our vast North American footprint could extend our growth outlook beyond 2021,” Girling added.
No. 5 Enterprise Products Partners LP
- NYSE: EPD
- Unit price as of Aug. 2: $29.25
One of the largest publicly traded partnerships providing midstream gathering, treating, transportation, processing and storage, Enterprise Products, at No. 5 on 2018’s Midstream 50 list, is set to develop an offshore Texas crude export terminal, according to a recent press release. The ability to load very large crude carriers (VLCC) with 2-million-barrel (MMbbl) capacity would be “the most efficient and cost-effective solution to export crude oil to the largest international markets in Asia and Europe,” the announcement said.
The company’s Seaway marine terminal in Texas City, Texas, will be able to load about 1.1 million barrels of crude on one VLCC. Seaway, a 50:50 JV between EPD and Enbridge Inc., includes 500 miles of 30-inch pipeline from Oklahoma to Texas, allowing supply to reach the Texas Gulf Coast, according to EPD.
A final investment decision (FID) is still expected on development of the export terminal, according to the company.
EPD reported strong financial results for the second quarter. Net income was reduced by $322 million, or 15 cents per unit on a fully diluted basis, of non-cash mark-to-market losses. “Substantially all of these mark-to-market losses were incurred in connection with our hedging activities related to the Midland-to-ECHO Pipeline,” it said. Adjusted EBITDA increased 32% to a record $1.8 billion for the quarter, compared with $1.3 billion for second-quarter 2017.
Capital investments were $983 million in the second quarter and $2.1 billion for the first six months of 2018. “Included in these investments were sustaining capex of $73 million in the second quarter of 2018 and $139 million in the first six months of 2018,” the firm said in its earnings announcement.
“We are very pleased with the performance of our businesses during the second quarter of 2018,” said CEO A.J. (Jim) Teague. “We set 14 financial and operational performance records during the quarter. We benefited from $5.3 billion of assets being placed in service since the second quarter of 2017, strong volume growth across our integrated system of assets and the impact of higher NGL prices on our natural gas processing business.”
No. 6 The Williams Cos. Inc.
- NYSE: WMB
- Share price as of Aug. 2: $30.98
Williams has interstate gas pipeline and gathering/processing operations across the U.S., including strategic assets in the deepwater Gulf of Mexico, the Rockies, the Pacific Northwest and the Eastern Seaboard. In a major restructuring of assets, the Tulsa, Okla.-based firm announced in the third quarter an asset sale in the Four Corners region and entry into the booming Denver-Julesburg Basin in northeastern Colorado.
Williams and KKR & Co. said they purchased Discovery DJ Services from TPG Growth, the middle-market and growth equity platform of alternative asset firm TPG, for $1.173 billion, subject to customary closing conditions and purchase price adjustments. Discovery is a Dallas-based provider of gas and oil gathering and processing services in the southern portion of the DJ Basin.
Williams will be Discovery’s operator and will hold a majority of governance voting rights. Williams has committed to fund additional capital as required to bring its economic ownership to 50:50.
Meanwhile, Williams announced the combined sale of assets and equity in New Mexico and Colorado to Harvest Midstream Co. for $1.125 billion in cash, subject to customary closing conditions. The proceeds from the transaction will contribute to funding Williams’ extensive portfolio of attractive growth capital and investment expenditures, including those opportunities associated with the Discovery acquisition, the firm said.
Williams gained the sprawling San Juan Basin assets in 1983 through its acquisition of Salt Lake City-based Northwest Energy Corp.
Williams has an active, long-term capex program and was scheduled to place its new Atlantic Sunrise Pipeline—helping to de-bottleneck Marcellus gas production—in service in August.
For the second quarter, Williams reported net income of $135 million, a $54 million increase over second-quarter 2017 results. Adjusted income per share was 17 cents, up 31% from the prior-year period.
In a move similar to Energy Transfer’s effort toward corporate simplification, Williams and its Williams Partners LP partnership announced merger plans in the second quarter, pending approval by share and unit holders at a mid-August special meeting in Tulsa, Okla.
No. 7 Plains All American Pipeline LP
- NYSE: PAA
- Unit price as of Aug. 2: $25.40
Plain’s key assets run from Canada to Corpus Christi, Texas, with major crude, NGL and gas pipelines with rail and marine refined products capabilities. The firm is a major midstream player in the booming Permian Basin.
Willie Chiang, executive vice president and COO, recently discussed Plains’ growth plans with analysts. Plains has emphasized it wants to expand its gathering footprint, primarily in the Delaware Basin, with expansion supported by a combination of acreage dedications and volume commitments. PAA is seeking to debottleneck the intra-basin system and provide access to take-away pipes while expanding capacity into and out of the Wink, Texas, hub.
Regarding projects, Chiang said its Cactus II Pipeline system is on-track to “connect the Delaware Basin with the Corpus Christi/Ingleside area,” and also noted that “the extension of 24-inch loop of our Sunrise system adds [about] 500,000 barrels per day of capacity from Midland [Texas] to Colorado City [Colo.] and Wichita Falls [Texas.] This enables us to utilize [about] 120,000 barrels per day of existing available capacity on our Basin Pipeline system from Wichita Falls to Cushing [Okla.]”
The firm was scheduled to announce second-quarter financial results in mid-August. According to first-quarter earnings, adjusted EBITDA for that quarter was $593 million, “slightly ahead of expectations” according to Chiang. Going into 2019, he said, fee-based adjusted EBITDA growth should be between 14% and 15%.
No. 8 MPLX
- NYSE: MPLX
- Unit price as of Aug. 2: $36.76
The Findlay, Ohio-based MLP, formed in 2012 by downstream giant Marathon Petroleum Corp., gathers, processes, transports and stores gas and NGL and is a major service provider in Appalachia’s Utica and Marcellus plays. It has 62 light-product terminals with about 24 MMbbl of storage capacity, and about 2.8 MMbbl of capacity in storage caverns, among other assets.
It described second-quarter earnings as record setting. It had $453 million of net income and $867 million of adjusted EBITDA. For gathering/processing alone, MPLX had $174 million in net income and $341 million in adjusted EBITDA, “driven by record gathered, processed and fractionated volumes,” the firm said in its earnings announcement.
In the Marcellus/Utica, a “solid growth trajectory” continued, with gathered volumes averaging 2.8 billion cubic feet per day (Bcf/d), up 46%, driven primarily by higher Utica dry gas volumes, the company said. Processed volumes went up 10% to 5.2 Bcf/d on average, and fractionated volumes went up 16%, averaging 407,000 barrels per day, the company added.
Growth in the Northeast is a priority, MPLX executives emphasize. Operations began at its 200-million-cubic-feet-per-day (MMcf/d) Majorsville 7 gas processing plant in Pennsylvania in July. MPLX also expects to add 600 MMcf/d of incremental processing capacity and 100,000 barrels per day of additional fractionation capacity in the Marcellus by the end of 2018, the firm added.
No. 9 ONEOK Inc.
- NYSE: OKE
- Share price as of Aug. 2: $67.70
This Fortune 500 company is a leading provider of NGL transmission and storage that has expanded its West Texas LPG system into the Delaware Basin and zeroed in on growing production in the Midcontinent Stack region in the last year. It’s also a major player in the Bakken and Oklahoma.
The Canadian Valley II project in western Oklahoma’s Stack play was designed to bring the company’s total gas processing capacity there to about 1.1 billion cubic feet per day by 2019, the company announced. The play is one of the key Midcontinent production and transport points, and it is undergoing “rapidly increasing customer production,” a press release said.
Also in 2017, ONEOK invested $200 million to expand its NGL system into the Delaware Basin, located in the prolific Permian Basin. This move “positions the West Texas LPG system for significant future NGL volume growth,” President and CEO Terry K. Spencer, adding key intrastate pipeline and storage assets include the Roadrunner Gas Transmission system serving the Permian.
For the second quarter, ONEOK announced improved financials compared to second-quarter 2017.
“Results primarily benefited from natural gas volume growth in the Stack and Scoop areas and the Williston Basin … NGL-volume growth in the Stack and Scoop areas and Permian Basin, and higher optimization and marketing activities in the natural gas liquids segment,” the company said in its earnings announcement.
OKE’s second-quarter operating income and EBITDA increased 40% and 30%, respectively, compared with second-quarter 2017. Quarterly net income totaled $281 million, 68 cents per diluted share while DCF increased 37% percent compared with second-quarter 2017.
No. 10 Cheniere Energy Inc.
- NYSE: LNG
- Share price as of Aug. 2: $63.07
The LNG giant jumped dozens of places on the current Midstream 50 list after holding the No. 40 spot in 2017’s rankings. This was solely due to its entry into the growing LNG export market. According to Jack Fusco, president and CEO, “2017 was a breakthrough year for Cheniere … In 2017, we brought the third and fourth trains at Sabine Pass [La.] online ahead of schedule and on-budget, fulfilling our obligations to our foundation customers and successfully marketing and delivering portfolio LNG volumes.”
Since that time, work has moved forward on its Corpus Christi Liquefaction project in Texas, with a FID made in May for Bechtel to continue construction, according to a press release. Serving Cheniere’s plants is requiring significant expansion of the gas pipeline grid around the Gulf of Mexico, including its Creole Trail Pipeline.
Second-quarter earnings were scheduled for release in mid August. For the first quarter, EBITDA was $907 million, an 88% increase from $483 million in 2017’s first period. The firm raised its 2018 guidance in its first-quarter earnings announcement. It projects full-year EBITDA to be between $2.3 billion and $2.5 billion, an increase from an earlier projection of $2 billion to $2.2 billion, with its DCF projection rising to $350 million to $550 million, above the earlier range of $200 million to $400 million.
Erin Pedigo can be reached at firstname.lastname@example.org or 713-260-6431.
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