The Utica shale is estimated to hold between 2 trillion and 70 trillion cubic feet of natural gas.
The Marcellus shale is the largest shale gas formation in America, holding an estimated 410 trillion cubic feet of gas. Production from the Marcellus has increased from just 1 billion cubic feet/day in 2007 to 14 billion cubic feet in 2014 and is projected to reach 28 billion cubic feet/day in 2035.
Consulting firm ICF International just published its second quarter detailed production report in which it estimates that combined Marcellus/Utica production will reach 34 billion cubic feet/day in 2035, an estimate that is up 36% since last quarter.
The reason for this increased estimate is the upward revisions in both the number of wells drilled/year and annual well production estimates. For example, ICF now expects 500 wells/year (up 27% from Q1's estimate) to be drilled in the Utica shale, each producing a total of 3.3 billion cubic feet of gas (up 32%). In the Marcellus it is projecting 2,050 wells/year (up 17%) with each producing a stunning 6.2 billion cubic feet (up 19%).
How can long-term income investors profit from this gas boom? By investing in midstream MLPs who provide the pipelines, processing plants and storage infrastructure to handle this coming ocean of gas.
Four ways to get rich
EQT Midstream Partners (NYSE: EQM ) , Energy Transfer Partners (NYSE: ETP ) and their respective general partners EQT Corporation (NYSE: EQT ) and Energy Transfer Equity (NYSE: ETE ) are great ways to lock in strong, growing income, and long-term market beating capital gains.
To help it cash in on the bonanza that is the Utica and Marcellus shale, EQT Midstream is partnering with NextEra Energy to construct the 330 mile Mountain Valley Pipeline, which would transport at least 2 billion cubic feet/day of gas from West Virginia to Virginia with possible extensions as far south as North Carolina. The project already has firm commitments representing 20-year contracts from two major gas shippers for 50% of its capacity.
EQT Corporation is the general partner of EQT Midstream partners and owns its incentive distribution rights (IDRs) and 36.4% of EQT Midstream's units. However, unlike most general partners EQT is also an exploration and production company with 44 trillion cubic feet equivalent of natural gas reserves in its Marcellus, Utica, and Kentucky assets. That's greater than 120 years of current production, which the company has been able to grow by over 24% just this year.
EQT's growth has been especially strong in the Marcellus shale, where it owns 560,000 acres that hold 3,020 potential drilling locations. At the beginning of 2014 it had just 194 wells active. Today that number is 390 and total Marcellus production is up over 70%.
EQT also has 170,000 acres of Utica land, with 43 wells, which are expected to produce 6 billion cubic feet of gas each while costing $5 million-$6 million each. At today's gas prices that represents gross revenues of $27 million/well and a 490% gross total return on investment.
EQT's largest assets are the 1.4 million acres of Huron shale in Kentucky. With over 10,000 potential drilling sites and only 889 current wells, this represents immense growth potential for the company. This is especially true since each $1.6 million well is expected to generate $6.3 million in revenue, a gross return of 393%.
Meanwhile, Energy Transfer Partners just announced a planned 400 mile, 2.2 billion cubic feet/day pipeline connecting its processing plants and interconnections in Pennsylvania, Ohio, and West Virginia to its Panhandle Eastern Pipeline. The pipeline will be expandable to 3.25 billion cubic feet/day and Energy Transfer Partners already has firm commitments from three major shippers for long-term contracts and possible equity stakes to help fund the project. Energy Transfer Partners plans to add a 195 mile pipeline from its Defiance, Ohio location that will run through Michigan and into Canada. This would give potential shippers access to greater markets for their Marcellus and Utica gas.
Energy Transfer Equity, is not only the general partner of Energy Transfer Partners, but the head of a $90 billion empire that spans no less than four MLPs and:
- 61,900 miles of pipelines
- 42 storage and export terminals
- 25 processing facilities
- 6,400 gas stations
|Company||Yield||10 Year Projected Distribution/Dividend Growth Rate||10 Year Projected Earnings Growth Rate||10 Year Annual Expected Total Return|
|EQT Midstream Partners||2%||19.55%||17.60%||11.60%|
|Energy Transfer Partners||6.60%||4.03%||4%||17%|
|Energy Transfer Equity||2.60%||18.46%||18.70%||29%|
The easiest way to get rich during a gold rush is by investing in "pick and shovel" makers, or in this case midstream MLPs that provide the transportation and processing infrastructure to get fast growing gas production to market. EQT Midstream Partners, Energy Transfer Partners, and their general partners, EQT Corp and Energy Transfer Equity are great firms that are well positioned to make a fortune over the next several decades from the megatrend that is the Utica and Marcellus gas boom. Long-term income investors seeking strong, growing income and market-crushing capital gains should board this gravy train now.
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