Russia's invasion of Ukraine has dramatically altered the energy landscape. It's driving up oil and gas prices, forcing countries to prioritize energy security. These factors are giving energy companies in the U.S. the confidence to start growing their production. But they'll need more infrastructure to support higher output in the future.
Pipeline companies are starting to benefit from this shift. They're able to secure enough customers to support new infrastructure projects. EnLink Midstream (ENLC -0.89%) and MPLX (MPLX -1.92%) were recent beneficiaries of these improving market conditions, and they could now have more fuel to grow their high-yield dividends in the future.
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Hitting the gas
EnLink and MPLX are partnering with oil and gas producer Devon Energy (DVN -1.39%) and privately held infrastructure company WhiteWater on the Matterhorn Express Pipeline. The 490-mile pipeline will be able to transport 2.5 billion cubic feet per day (Bcf/d) of natural gas sourced from the prolific Permian Basin to Houston, Texas. It will receive gas from multiple places in the Permian, including a direct connection to processing plants in the region through a 75-mile lateral and the 3.2 Bcf/d Agua Blanca Pipeline operated by WhiteWater and MPLX.
The pipeline will support producers like Devon Energy as they increase their production in the Permian in the coming years. The partners secured enough customers to make a positive investment decision on the pipeline, which they expect to finish by the third quarter of 2024, assuming regulatory and other approvals.
The Matterhorn Express Pipeline will produce predictable cash flow when it enters service, secured by those firm transportation agreements with customers. That will give midstream companies EnLink and MPLX more cash flow to support their dividends, which yield 4.5% and 9.3%, respectively. It will also supply Devon Energy with steady cash flow to fund its attractive payout, which yields around 8% when adding its variable dividend.
Adding to their growth drivers
MPLX already has several expansion projects under construction and in development. It expects to finish construction on two processing plants this year. Meanwhile, it recently reached a final investment decision to expand its Whistler Pipeline. The company and its partners, which includes WhiteWater, received enough firm transportation agreements with shippers to move forward with an expansion from 2 Bcf/d to 2.5 Bcf/d, which they expect will be in service by September of 2023. It's also looking to expand its oil pipelines.
MLPX's cash flow should keep growing for the next few years when adding Matterhorn to the mix. Given its strong financial profile, the master limited partnership (MLP) should be able to continue returning more cash to shareholders. MPLX already raised its high-yielding distribution by 2.5% last year to go along with a sizable special distribution and repurchase program.
Meanwhile, EnLink's cash flow is rising thanks to higher commodity prices, which are driving increased volumes across its legacy systems. Those improving market conditions are also providing EnLink with new expansion opportunities in addition to Matterhorn. The company increased its capital spending range from $230 million-$$260 million up to $280 million-$310 million, which should drive growth in the near term.
It's also working on some longer-term opportunities. It signed a letter of intent with Occidental Petroleum (OXY -0.97%) subsidiary Oxy Low Carbon Ventures to provide it with carbon dioxide transportation services. The potential project would utilize new and existing pipelines operated by EnLink to move carbon dioxide captured by Occidental to a sequestration hub it's developing.
Projects like these will provide EnLink with more cash flow to return to shareholders. In addition to paying an attractive dividend, EnLink is buying back its stock. Meanwhile, with its cash flow expected to continue rising while its share count is falling, EnLink should be able to grow its dividends on a per-share basis in the coming years.
More income ahead
EnLink and MPLX already offer investors attractive income streams. However, with conditions in the energy market improving, they should produce even more cash flow in the future, especially as they complete new expansion projects like Matterhorn. That should give these pipeline companies the fuel to pay even more generous dividends in the coming years.
