Safety in Numbers With This Pipeline Play

File:Alaska Pipeline Closeup Underneath.jpg

Source: Wikimedia Commons.

They say two (or more) is better than one, and that seems to be the case for these companies that are working together to accomplish a common goal.

A foursome 
Enterprise Products Partners (NYSE: EPD  ) , Anadarko Petroleum (NYSE: APC  ) , and DCP Midstream, a joint venture between Spectra Energy (NYSE: SE  )  and Phillips 66 (NYSE: PSX  ) , are about to complete the Front Range pipeline, which will run from the DJ Basin down to the Texas Express pipeline. It will be able to carry 150,000 bpd of natural gas liquid (NGL) with the possibility to increase that to 230,000 bpd if production keeps increasing. Front Range is expected to come online in the forth quarter of 2013. 

This pipeline venture is a great idea for several reasons. Anadarko needs to get its NGL to a buyer, so it needs to be able to ship its NGL to refineries on the coast. Enterprise Products Partners is seeking growth by building new pipelines, so it's happy to invest with an E&P player to help Anadarko out and profit at the same time. For DCP, Spectra needs NGL to move/store and Phillips 66 needs NGL to process into a final project.

All four players benefit from this project and stand to profit from the creation of the pipeline. There is no reason why it always has to be a dog-eat-dog world; companies are fully capable of working together to achieve a mutually beneficial goal. 

Add in one more
The purpose of the Front Range pipeline is to connect the DJ Basin to Texas, but it only goes part of the way. To get the NGL all the way there, Enterprise Products Partners, Anadarko, Phillips 66, Spectra (through DCP), and Enbridge Energy Partners (NYSE: EEP  ) are working together to build the Texas Express pipeline.

Texas Express will carry NGL all the way down to Texas to be processed and is expected to come online in the forth quarter of 2013, in conjunction with the Front Range pipeline. The Texas Express will have the capacity to move 280,000 bpd of NGL, with the possibility to increase that to 400,000 bpd as market conditions dictate.

All five of these players want the same thing, to get NGL to Texas. They all stand to see significant increases in their cash flow as a result. Whether it's the fees to move the NGL, the ability to sell NGL for the highest price possible, or having more NGL to process into a final product, all of these companies rely on each other.  

Going solo
Enterprise Products Partners is also building out pipeline capacity by itself. Rising production from the Rocky Mountain region means more pipeline capacity needs to be brought online to move the additional output.

Enterprise Products Partners is going to increase the capacity of its NGL Mid-America Pipeline from 275,000 bpd to approximately 350,000 bpd, and the increased capacity will come online in the second quarter of 2014. The pipeline transports NGL down to Texas to be refined. The additional capacity will enable Enterprise Products Partners to capitalize on multiple NGL plays and will increase its cash flow as well. That will allow it to continue to increase its capacity around America and boost its 7% distribution.

Final thoughts
America is a great country, built on the back of competition. Sometimes, though, companies can work together to boost their bottom lines and increase cash flows. This is the case for these energy companies, and the several joint ventures that they are invested in will increase value for shareholders.

More ways to profit from America's energy boom
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2702485, ~/Articles/ArticleHandler.aspx, 4/19/2014 4:30:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement