Everywhere you look, there seems to be an increasing amount of attention paid to how much oil and natural gas the U.S. is producing right now. All that energy needs to be gathered, processed, stored, and transported to refineries and other consumers, and that's where today's growth story comes in. Midstream companies are responsible for our energy after exploration and production companies have found it and gotten it out of the ground.
Due to a domestic production level the U.S. hasn't seen in years, the midstream industry is booming, expecting to spend $130 billion-$210 billion expanding natural gas infrastructure alone over the next 20 years. That's right, in spite of basement-dwelling prices for U.S. natural gas, the first six months of production in the Marcellus Shale doubled what it was last year. Wells in the shale are waiting for pipelines to be built before they come online, and the consultancy Bentek Energy forecasts a 78% increase in production over the next three years as midstream infrastructure catches up with the backlog of wells.
Today we'll look at the growth story of three compelling midstream companies that are benefiting from the American onshore boom.
1). Enterprise Products Partners
In the past, Enterprise has grown largely due to massive acquisitions. Now, the partnership is solely focused on organic development, yet continues to grow at quite a clip. It's bringing $3.2 billion in infrastructure online by the end of 2012. Much of that development is happening in the Eagle Ford play in Texas, one of the hottest onshore production plays in the U.S. right now. All told, Enterprise currently has more than $7.5 billion in growth projects under construction. And, unlike other midstream heavyweights, Enterprise isn't fighting environmental, civil, and government opposition to a major pipeline project right now.
Enterprise operates almost 51,000 miles of pipelines, as well as processing plants, fractionation facilities, and import/export terminals. The partnership has increased its asset base from $715 million at its IPO in 1998 to $34 billion today, and that number is only going to climb.
2). Plains All American Pipeline
While its peer Enterprise Products Partners focuses on organic growth, Plains is pursuing a long-term growth strategy of "bolt-on" acquisitions in key markets where it already has assets. The company has proved adept at staying on the pulse of the industry, striking a key deal to pick up BP's Canadian natural gas liquids assets right before many producers announced they were ditching dry gas production to focus on NGLs.
Plains operates close to 19,000 miles of pipeline and numerous trucks, trailers, and barges. The partnership also owns storage facilities, fractionation plants, and processing centers across the U.S. and Canada. The partnership has spent roughly $3 billion on strategic acquisitions since the beginning of 2011 -- all the while staying committed to increasing its payout to unit holders.
3). Energy Transfer Partners
Since the end of 2010, Energy Transfer Partners has announced $3 billion worth of organic growth projects, the majority of which will be online and in service by the end of this year. The partnership has also announced some crucial acquisitions over the past year, for example, its bid for Sunoco in May.
This mix of organic growth and acquisitions does two necessary things for ETP. First, the growth increases the diversity of ETP's business mix. Second, it almost guarantees the likelihood of additional distributable cash flow. For example, the bid for Sunoco, which is expected to close by the end of this year, is expected to bring in 33% of ETP's future cash flow.
In 2009, 52% of ETP's business was dedicated to intrastate natural gas pipelines. Today, that number is down to 26%, and the overall make-up of the business is far more diversified than it was even two years ago. In this way, ETP mitigates any disadvantages that affect one specific revenue stream, while opening the door for more opportunistic growth across the various niches of the midstream industry.
Many of ETP's new projects are fee-based, meaning there is little to no exposure to commodity price risks, creating reliable income streams that lend themselves well to increasing distribution payments.
The midstream industry presents a tremendous opportunity for investors for the near future. Pipelines will be built and filled immediately to support the energy production in plays like the Marcellus and Utica shales, the Eagle Ford, and the Bakken. And, aside from the compelling growth story, there are other advantages to midstream stocks that investors can't afford to ignore, like high yields and reliable dividend histories. For a few more dividend generating stock ideas, check out the Fool's special free report, "Secure Your Future With 9 Rock-Solid Dividend Stocks."
Fool contributor Aimee Duffy holds no position in any company mentioned. Click here to see her holdings and a short bio. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.
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