There's a big party in south Texas right now, and oil producers are making out like bandits. There is plenty of Foolish coverage on the Eagle Ford shale, and producers such as EOG Resources (NYSE: EOG ) that are releasing mind-blowing production numbers quarter after quarter. Quietly floating under the radar are the midstream companies such as Energy Transfer Partners (NYSE: ETP ) and Enterprise Products Partners (NYSE: EPD ) that gather, transport, process, and store all of the liquids flowing from the Eagle Ford. Today we're looking at their story.
Production has soared over the past five years, with EOG Resources leading the way, but crude oil pipelines and natural gas liquids processing capacity is following closely behind, presenting a big opportunity for investors.
According to Energy Transfer Partners' recent analyst day presentation, NGL processing capacity alone has grown by 4.7 billion cubic feet per day since 2010. Enterprise Products Partners is the current leader in the play, with capacity of 1.5 bcf per day, followed by Energy Transfer with 1.3 bcf per day.
It's not just NGLs that are driving growth at our midstream companies; naturally, crude oil is also having an impact. Enterprise is currently expanding its Eagle Ford curde pipeline joint venture with Plains All American Pipeline (NYSE: PAA ) , which should bring capacity up to 470,000 barrels per day by the middle of 2015. It's also expanding its ECHO terminal facility to increase crude oil storage on the Gulf Coast. An Eagle Ford pipeline happens to feed directly into the facility.
Both Enterprise and Energy Transfer have experienced positive effects on the bottom line because of their respective investments in the Eagle Ford. This play is a money maker. Consider this from ETP's third quarter earnings release:
Midstream gross margin for the three months ended September 30, 2013 compared to the same period last year reflected increases in fee-based revenues of $37 million due to increased production in the Eagle Ford Shale.
It's a similar story over at Enterprise. The partnership mentions the play no fewer than six times over three different business segment reviews in its earnings report. From its third-quarter release:
Enterprise's South Texas crude oil pipeline system reported a $51 million increase in gross operating margin on a 97 percent, or 146 MBPD, increase in volume compared to the third quarter of last year. These increases were primarily due to the continued ramp-up of volumes on our Eagle Ford crude oil pipeline extension, which began operations in June 2012.
Processing margins and pipeline volumes may not entice investors the same way that oil production numbers do, but they're having a big effect on the midstream players that operate infrastructure in the Eagle Ford. Savvy investors will take note not just in this instance, but also in the Permian basin, and any shale play that takes off in the future.
Investors are attracted to midstream MLPs like Energy Transfer Partners and Enterprise Products Partners because they tend to offer reliable distributions. Where oil and gas companies are at the mercy of oil and gas prices, midstream companies are frequently able to take advantage of booming energy plays without the commodity risk, which makes them compelling opportunities in the near term.
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