Top Midstream Producers at the Heart of Canada's Energy Industry

Several oil and gas producers are operating with a complete backlog, thanks to the saturated capacity of the existing infrastructure at the Canadian energy hub in Hardisty, Alberta. As a result, some midstream companies are taking advantage of the situation.

With all of the perplexity surrounding regulatory approvals, pipeline builders have a hard time building new infrastructure, thereby creating an overload in the current network. That bottleneck has generated huge headaches for the producers trying to route their oil to refineries.

If this situation remains a great cause for concern, midstream companies are still benefiting greatly from this opportunity. Notably, midstream companies are maximizing their profits by running their infrastructure at full capacity or by providing necessary equipment to producers.

Gaining substantial advantages
The first midstream company on my radar is also an oil and gas producer. It has seen its operating income more than doubled in a year. The company earned $73.3 million in the third quarter of 2013, compared to the $26.6 million it reported for the same period last year. ARC Resources (TSX: ARX  ) is one of Canada's leading conventional oil and gas companies with five core areas across Western Canada. It achieved third quarter production of 94,515 Boe/d, up 6% from the third quarter of 2012.

What I like the most about ARC is the development of its Parkland Gas Plant, an $830 million handling facility located in northeast British Columbia. The plant is designed to process oil, gas, and natural gas liquids. The facility will have an initial capacity of 60 Mmcf of gas and 8,000 barrels of liquids per day, including 5,000 Boe/d of oil and 3,000 Bbls/d of NGLs. The plant is scheduled to open in early 2014.

The second midstream company that I've been watching is the premier provider of heavy construction and mining services in Canada. North American Energy Partners (NYSE: NOA  )  is the corporate parent of North American Construction Group and provides a wide array of services to oil and gas producers. These services cover fields such as heavy construction, industrial or tailings, and environmental construction. The company maintains one of the largest independently owned equipment fleets in the region and specializes in the Canadian oil sands area.

North American Energy Partners is among the most notable producers in the oil sands, which include Total, Suncor, Canadian Natural Resources, and ExxonMobil. The company is currently restructuring its services in order to become a pure-play heavy construction and mining contractor, thus realizing better target cost efficiencies.

For the third quarter of 2013, the company recorded operating income of $0.6 million due to asset divestitures, after an operating loss of $0.7 million registered for the same period last year. Last October, it started its share repurchase program with the objective of buying back 1.8 million common shares for cancellation; this represented about 5% of the issued and outstanding shares.

The last midstream company discussed in this article is one of my favorites in the industry. This large midstream company strategically owns key infrastructure in the heart of the Canadian energy hub in Hardisty and Edmonton, Alberta. For more than 60 years, Gibson Energy (TSX: GEI  ) has provided a wide range of services including the terminalling, storage, blending, processing, marketing, and distribution of crude oil, NGL, condensate, and refined products to oil and gas companies located in Western Canada.

Gibson is one of the most complete infrastructure companies in Canada, with approximately 295 miles of pipeline and 78 pipeline injection stations, storage terminals with a capacity of approximately 4.8 million barrels, as well as pipeline facilities with capacity of over 94,000 barrels per day. Gibson's pipeline network is connected to major transmission pipelines including TransCanada's Keystone, Enbridge's Athabasca, Spectra's Express, and Kinder Morgan's Trans Mountain. For 2012, it processed nearly 1 million gallons of storage capacity at five locations, including its Moose Jaw facility.

With its strategic location and connection to major infrastructure in North America, Gibson has been able to grow its income from operating activities year after year. As a matter of fact, its operating income grew from $13.9 million in 2011 to $17.3 million in 2012. For the nine months ended Sept. 30, the company recorded operating income of $17.3 million; this is the same amount that it achieved all of last year.

My Foolish take
Western Canada, which includes the great Canadian oil sands, is a place of predilection for oil and gas producers as well as for midstream companies. The area is busier than ever thanks to the Canadian oil sands and the emergence of shale gas plays in Alberta and British Columbia. Investing in the energy industry's infrastructure and supply related companies makes a lot of sense.

The bottleneck in Hardisty and Edmonton will not be resolved until new pipelines are built, which will take around two years or so. Some of the overload has been assigned to railway companies, but the problem subsists and the Canadian energy hub will remain very busy. Therefore, I believe that these three midstream companies offer a great opportunity to get involved in one of the busiest energy hubs in North America.

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