Enterprise Products Partners (EPD +2.46%) is the country's biggest publicly traded midstream master limited partnership by market cap. The partnership has an incredibly diverse asset base that targets some of the most important shale plays in the United States, including the Marcellus Shale, the Permian Basin, and the Eagle Ford Shale. All told, the company operates more than 50,000 miles of pipeline, the majority of which carry natural gas and natural gas liquids (NGLs).
Being on top doesn't make it any easier to stay there, and the midstream market is becoming increasingly competitive. However, I think Enterprise is one of the best midstream investment options out there, and I created a premium report on Enterprise to help guide investors on whether the company merits consideration for their portfolio.
Following is an excerpt from the report, laying out the company's opportunity. We hope you enjoy it.
The opportunity
In 2010, Enterprise merged with Enterprise GP Holdings, effectively ending incentive distribution rights to its general partner. This simplified structure results in a lower cost of capital and an increase in financial flexibility for the partnership. It was perfect timing, and the new and improved Enterprise Products Partners is positioned perfectly to take advantage of three key trends in the energy world.
Trend No. 1
First, its processing assets along the Gulf Coast are ideal for exports. The U.S. recently became a net exporter of petroleum products, and the global demand for petrochemicals is poised to increase as well. In fact, petrochemical companies like Dow Chemical are building or reopening ethylene crackers on the Gulf Coast for the first time in years, which bodes well for Enterprise's planned ethane pipeline, ATEX Express, that will run from the Marcellus Shale to the Gulf Coast.
The Marcellus Shale is an invaluable connection for Enterprise's Gulf Coast assets and export potential. Currently, there is a tremendous amount of natural gas – some estimates put it at 489-trillion cubic feet – trapped in the shale under the ground in Pennsylvania, New York, and West Virginia.
There have been approximately 5,900 unconventional wells drilled in the Marcellus since 2008, but only 2,875 wells reported production in the first half of 2012. The lag is caused by a dearth of midstream infrastructure to bring the gas to market once it is produced. More than 1,000 wells drilled in the last year and a half are waiting to come online, and analysts predict Marcellus production will increase 78% over the course of the next three years as the build-out of midstream infrastructure allows these wells to begin producing.
Enterprise's ATEX Express is expected to transport 190,000 barrels of ethane per day from Pennsylvania down to Texas, and it is scheduled to begin service in the first quarter of 2014.
Trend No. 2
Second, NGLs are Enterprise's bread and butter. The depressed price of methane has driven many explorers and producers to switch production focus from dry gas to wet gas, and no one was more ready for it than Enterprise. NGL pipelines and related services make up 58% of the partnership's business mix. Be it pipelines, storage, fractionation, or import/export terminals, Enterprise can fulfill a wide array of needs for NGL producers.
For a better understanding of Enterprise's range, let's take a quick look at two recent announcements.
In April, Enterprise announced it had struck a deal with Anadarko and DCP Midstream to develop the Front Range pipeline. The new 435-mile line will transport NGLs from the Denver-Julesberg basin in Colorado to Skellytown, Texas. Expected to start service by the end of next year, it will provide connections to other lines in the Enterprise network, including the Texas Express and the Mid-America Pipeline, the latter being one of the partnership's most significant systems.
In May, Enterprise announced that the first train at its new cryogenic natural gas processing plant was up and running. The entire facility will be able to process 300-million cubic feet of natural gas per day, and, at first, draw almost exclusively from the natural gas supply of the Eagle Ford shale.
These two projects highlight Enterprise's ability to reach out to newer NGL plays, like the Denver-Julesberg basin, and capitalize on existing demand in more traditional natural gas producing regions.
Trend No. 3
Finally, Enterprise is big enough to create business for itself. The demand for cheap ethane, combined with a switch to methane for home heating, has significantly reduced the use of propane in developing ethylene. As a result, there has been a decline in the associated production of propylene, a key component of plastic. Seizing this opportunity, the partnership announced that it is building one of the world's largest propane dehydrogenation facilities. It will be located on the Gulf Coast, and exports will go through an Enterprise terminal while domestic supply will be shipped to nearby chemical customers via Enterprise-owned pipelines.
All told, Enterprise has more than $8 billion in infrastructure coming online to meet needs just like this one. Much of that is directed at the Eagle Ford Shale play in Texas, one of the nation's most prolific plays right now.
Looking for more guidance?
That was just a sample of our new premium report on Enterprise. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now.
