The analyst’s question was asked in February 2023, but was eerily reminiscent of one that might have been asked in 2013: will new infrastructure come online fast enough to keep up with producers?
Then, the focus was moving oil out of the Permian Basin. Now, it’s gathering, processing and transporting natural gas.
Targa Resources’ Pat McDonie, president of gathering and processing, answered by ticking off up-and-coming assets during his company’s fourth-quarter earnings call:
- In the Delaware Basin, the Red Hills VI gas processing plant went online in September and immediately filled up;
- The Peregrine and Falcon plants had spare capacity to take on an additional 150 MMcf/d;
- Third-party assets took on offload capacity;
- Midway is coming online in second-quarter 2023; and
- Wildcat II is coming online in first-quarter 2024.
Soon after, the Roadrunner II plant—relocated from South Texas—is expected to go online in second-quarter 2024 “because, frankly, we’re going to need it.”
But don’t forget, McDonie added, “we have the ability to run our plants over nameplate, which can give us another 100 MMcf/d to 150 MMcf/d of incremental capacity.”
More, more, more
Even for a company fond of naming its assets for speedy animals, Targa is moving quickly. But it is not alone.
EnLink Midstream shored up its gathering and processing assets with a bolt-on acquisition in the Anadarko Basin in the fourth quarter. The Redfin and Carmen gas processing plants in Woodward County, Oklahoma, were purchased from Tall Oak Midstream, East Daley Analytics said in a research note.
“This is another example of our low-risk consolidation strategy, which is designed to yield attractive returns in any market environment,” Jesse Arenivas, EnLink’s CEO, said during the company’s fourth-quarter earnings call.
EnLink’s Central Oklahoma (COK) system was up against an infrastructure constraint after moving its Thunderbird and Battle Ridge gas processing plants to the Midland Basin last year, James Taylor, senior analyst with East Daley, wrote. The new plants will boost capacity by 280 MMcf/d.
“With the added processing capacity, East Daley does not foresee ENLC hitting capacity ceiling for the foreseeable future, creating plenty of headroom for STACK producers to grow supply and for EnLink to grow asset earnings,” he said.
EnLink is also moving another gas plant, Tiger II, to the Delaware Basin, and has boosted its Midland Basin capacity by 235 MMcf/d with completion of the Phantom processing plant.
The company also plans to restart the Gulf Coast Fractionators facility in Mont Belvieu, Texas, by second-quarter 2024. The 145,000 bbl/d plant is a joint venture with Targa and Philips 66.
ONEOK is keeping pace, as well.
It has filed a Presidential Permit application to build international border crossing facilities to connect its proposed Saguaro Connector natural gas pipeline with a pipe under development in Mexico. The gas would be delivered to an export terminal on Mexico’s west coast. ONEOK expects a final investment decision on the pipeline project by mid-year.
Also on the way:
- MB-5, a 125,000-bbl/d NGL fractionator in Mont Belvieu, is expected to be completed in the second quarter;
- MB-6, another 125,000-bbl/d NGL fractionator in Mont Belvieu, has an expected completion date of first-quarter 2025; and
- Already here: Demicks Lake III, a 200 MMcf/d gas processing plant in the Williston Basin, was completed in February.
Momentum, momentum, momentum
The outlooks of the companies’ executives say it’s all about expectations for 2023.
Jen Kneale, Targa CFO: “…We really are very excited about the continued momentum...”
Arenivas: “We look for this momentum to continue…”
Kevin Burdick, ONEOK’s executive vice president and chief commercial officer: “…Continuing the momentum we saw from producers in 2022.”
The sunny outlooks are well-earned. ONEOK was designated a cutting-edge growth stock by Zack’s Equity Research. Targa’s fourth-quarter earnings per share of $1.38 beat estimates and is one of Moody’s Investor Service’s “rising stars.” And Citi upgraded EnLink’s rating, based on its aggressive carbon capture plans.
As a whole, the midstream sector is looking strong from an investor’s point of view. TPH noted that the sector could experience some earnings troubles as commodity prices fall and producer cutbacks would likely be more felt in 2024, when a recovery is likely (unless a recession materializes).
Targa’s fourth-quarter EBITDA of $840 million was up 47% over the same quarter in 2021, and full-year 2022 of $2.9 billion was up 41% over 2021. Guidance for 2023 is $3.5 billion-$3.7 billion and capex is expected to be in the range of $1.8 billion-$1.9 billion.
ONEOK reported EBITDA of $967 million in the quarter, up 14.3% over the previous year, while full-year EBITDA of $3.62 billion edged up 7.1%. For 2023, EBITDA is expected to be around $4.6 billion with capex of $1.27 billion to $1.48 billion.
EnLink’s fourth-quarter EBITDA of $337 million was 17.7% above the same period of a year earlier. Full-year EBITDA of $1.28 billion was up 22.3%. For 2023, EBITDA is expected to be $1.36 billion.
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