Energy companies across North America need to invest a whopping $800 billion over the next 18 years to build out the infrastructure required to move the continent's growing supply of oil and gas from production basins to market centers. Of that amount, companies need to spend an estimated $321 billion in building oil-related infrastructure alone, which includes new gathering pipelines, storage tanks, and other midstream assets.
It's a needle-moving opportunity that Enable Midstream Partners (NYSE:ENBL) is working hard to capture. The midstream MLP recently took two notable steps in that direction after announcing an acquisition and a new expansion project that will enable it to grow its oil gathering business. These new additions will provide the company with more cash flow to support -- and potentially increase -- its 8.2%-yielding distribution to investors.
A two-pronged attack
Enable Midstream is taking steps to significantly expand its crude oil gathering business. First, the company agreed to acquire Velocity Holdings, an oil gathering and transportation company focused on the Anadarko Basin of Oklahoma. Enable is paying $442 million for the company, which operates 150 miles of pipelines that currently move 225,000 barrels of oil per day (BPD). Velocity also controls 400,000 barrels of storage capacity. The acquisition will build on Enable's market-leading natural gas gathering and processing business in the region, enabling it to offer customers an integrated platform to move their oil and gas production from newly drilled wells to longer-haul pipelines. The acquisition positions the company for continued expansion as its current customers drill more wells and it adds new ones to its roster.
Enable Midstream also plans to expand its existing crude oil and water gathering systems to support growing production volumes from customers in the Bakken shale region of North Dakota. The company plans to increase the design capacity of its crude oil gathering system in the area by 72,000 BPD, boosting the total up to 130,000 BPD. The MLP anticipates that it will start gathering some of these incremental volumes on the system expansion as soon as the first half of 2019.
Enable Midstream expects that these additions to its oil gathering business will boost its cash flow per unit starting next year. In addition to that near-term boost, Enable's earnings and cash flow should continue rising in the coming years as drilling activities ramp up, which should drive additional volumes through those systems. Meanwhile, these new additions will bolster the company's strategic positioning in both areas, setting it up to potentially continue expanding both systems in the future.
There's more growth coming down the pipeline
In addition to taking steps to capture some of the $321 billion of anticipated oil infrastructure investments, Enable Midstream is also working to win more of the $400 billion natural gas infrastructure opportunity. The company currently has a couple of small gas expansions underway. The CaSE project, for example, will move additional gas supplies out of the Anadarko Basin for Newfield Exploration (NYSE:NFX). Enable Midstream expects to finish that project by year-end, which should provide Newfield Exploration with greater access to higher-priced gas markets. In addition, Enable is working on a project for OGE Energy (NYSE:OGE) -- one of its parent companies. In this case, it's building gas pipeline infrastructure to OGE Energy's Muskogee generation station so that the facility can convert from coal to gas.
Meanwhile, the company is also developing the Gulf Run Pipeline, which would move natural gas from Northern Louisiana to the coast, where it would feed into the growing liquefied natural gas (LNG) export market. This 165-mile pipeline would utilize the company's existing Enable Gas Transmission infrastructure to link gas supplies from around the U.S. to an LNG export facility under development. If given the green light, this project would enter service in 2022. It could be the first of many new gas-related projects Enable develops in the future to move more gas to feed not only LNG facilities, but power plants and industrial sites, too.
An increasingly compelling income opportunity
Enable Midstream's oil and gas infrastructure assets currently generate enough cash flow to support its high-yielding payout by a comfortable 1.24 times. With several expansion projects underway, its cash flow should grow in the coming years, which could enable the company to start increasing its payout once again. Add in the potential for more growth down the road as it captures additional projects like Gulf Run, and this high-yield stock is certainly worth considering.