Enterprise Products Partners (NYSE:EPD) operates one of the largest midstream systems in the country. I say system on purpose because the company is quick to point out that it's not a collector of assets but a builder of systems. These highly integrated systems enable the company to use its assets to best fit the market conditions and thereby continue to grow its business.
This integrated systems approach puts the company in a unique position to grow as it can optimize and repurpose its assets to best position its business to meet the needs of its customers. Over the past couple of years Enterprise has been active in repurposing certain assets as market demand has changed. This has included taking underutilized assets within its system and finding a better way to utilize them given the company's industry outlook. Let's take a look at how Enterprise takes takes these older assets and polishes them up to turn them into real jewels of future growth.
Once it was a gas pipeline, then it was a pipeline to bring imported oil up to Cushing, Okla., for storage, but now Seaway is taking domestically produced oil to the Gulf Coast refinery market. The new Seaway is a 50% joint venture with Enbridge (NYSE:ENB) and includes a reversal of the flow of oil and capacity expansions. The project is a key driver in alleviating the oil glut that had Cushing virtually overflowing with oil, thanks to the astronomical growth we've seen in oil production over the past few years. It's probably the most well-known, repurposed asset in the midstream industry; it has been a critical component to improve the flow of oil in the country's mid-section.
Infrastructure issues have affected more than just oil as natural gas production out of the Marcellus has caused an ethane glut. This forced producers to turn to trucks and trains to get ethane to customers. Enterprise found that the most cost effective and quickest solution would be to reverse and repurpose some of its existing pipeline for ethane. That meant that the 1,230 mile project only needed 650 miles of new pipe to be laid.
One of the top Marcellus and Utica leaseholders, Chesapeake Energy (NYSE:CHK) was quick to sign on to be an anchor shipper for the project. The company jumped at the opportunity to obtain premium prices for its Marcellus and Utica ethane. The project attracted other top Marcellus leaseholders including Range Resources (NYSE:RRC) which also signed on to be an anchor shipper. The company noted that the ATEX "will allow us to tap into the most attractive ethane market in North America."
Don't look now, but the Gulf of Mexico is coming back. Production had been declining in the wake of the BP's Macondo well disaster; however, that decline will be reserving over the next few years. Several oil companies have announced major discoveries over the past year and these new sources of production will need to be transported to the Gulf Coast refinery market.
Enterprise, along with its 50% joint-venture partner Genesis Energy (NYSE:GEL), is building the Lucius Crude Oil Export Pipeline to meet the needs of several major producers in the Gulf. The project includes a 149 mile pipeline with capacity of 115,000 barrels per day. Here, Enterprise is repurposing 46 miles of pipeline from the underutilized Phoenix Gas Pipeline while also revitalizing the Poseidon Platform to serve as the Lucius Pipeline terminus. This includes removing idle equipment and installing new pumps and equipment. Like the other two projects, this helps cuts costs and time to market, improving the returns of both Enterprise and its customers and therefore creating a real win-win solution.
Motley Fool contributor Matt DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Range Resources. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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