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1 Not So Obvious Way to Profit from the West Texas Energy Boom

Photo credit: Flickr/Paul Lowry

The Permian Basin is the gift that keeps on giving to energy companies. Not only have drillers pulled out nearly 29 billion barrels of oil since it was first discovered in 1921, but at least that much oil is still lurking deep in the heart of Texas. Because of this, today's Permian Basin focused drillers like Pioneer Natural Resources (NYSE: PXD  )  and others see current production doubling over the next few years.

While most of the new production that Pioneer Natural Resources will be bringing online is oil, it will still produce a lot of natural gas that's associated with that oil. That gas production opens the door for Atlas Pipeline Partners, L.P. (NYSE: APL  ) to profit as it gathers and processes all that gas. That makes Atlas Pipeline Partners a not so obvious way to profit from the booming production in west Texas.

As the slide below shows, Atlas Pipeline Partners has enjoyed significant processing growth over the past few years.

Source: Atlas Pipeline Partners Investor Presentation  

That growth, however, is only the beginning. As the company notes, Pioneer Natural Resources has over 900,000 acres in the Permian Basin and it's accelerating its drilling program. Overall, Pioneer Natural Resources believes it will eventually drill 20,500 wells in order to tap the 9.6 billion barrels of oil equivalent reserves it's sitting on in the Permian Basin.

One of the biggest issues holding back that future production from Pioneer Natural Resources as well as other producers around the country is the lack of processing capacity for the gas. In order to pre-empt these problems, Pioneer Natural Resources is working closely with Atlas Pipeline Partners.

On the company's last quarterly conference call Pioneer Natural Resources' CEO Scott Sheffield noted that his company,

Went on a mission about 18 months ago to educate Atlas [Pipeline Partners to] the fact that we need a gas processing plant about every 18 months and so we're on track to bring on a plant about every 18 months...So the next one is in '14 and then we got one scheduled for '15 and probably you will need another one about every 18 months moving forward. 

Because of this relationship Atlas Pipeline Partners is profiting off of the growth of Pioneer Natural Resources. Further the company can complement that growth by taking on more third party activity that is accelerating as more companies focus on the Permian to grow production in the region.

There are so many ways to profit from the oil and gas boom. While drillers like Pioneer Natural Resources are the obvious choice, investors shouldn't miss the fact that midstream companies like Atlas Pipeline Partners are in a unique position to profit as these companies keep on drilling.

Three more stocks profiting off of the energy boom

Record oil and natural gas production is revolutionizing the United States' energy position. That's providing opportunities for both drillers and midstream companies to enjoy explosive growth. That growth is available to you as well. For our top three energy boom stocks, 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. 

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Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

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