To grow its distribution by 25% over the past five years, midstream energy specialist Enterprise Products Partners (EPD 1.29%) completed 70 major projects at a cost of $10 billion, which was slightly under budget. Looking ahead, the company is building three pipelines that could provide massive income upside for investors.
Six and a half million feet of pipeline
The Marcellus and Utica shale plays have suffered from a lackluster amount of takeaway capacity. Enterprise Products Partners was up to the challenge, and decided to build and link 1,230 miles of pipelines extending from Appalachia to Houston. The ATEX Express pipeline is due to open this quarter; it is designed to carry 125,000 barrels of day of ethane from the Utica and Marcellus shales to the Gulf Coast refinery complex for use as feedstock in petrochemical production.
There is still a lot of additional cash flow that can be wrung out of this investment. The ATEX Express is already connected to two natural gas liquids fractionators, and management plans on connecting two more NGL fractionators to the pipeline over the next six months.
As more fractionation capacity is hooked up to the pipeline, demand for NGL transportation via the ATEX Express will increase. Enterprise Products Partners wants to eventually increase the transportation capacity of the pipeline to 265,000 bpd if there is suitable demand. Unit holders shouldn't be worried about demand, as Enterprise Products Partners sees roughly 100 years' worth of drilling inventory in the Utica and Marcellus shales, leaving a long runway of NGL output growth from the region over the next few decades.
Don't forget about Oklahoma
The ATEX Express will help alleviate the bottleneck up north, but the shale revolution is widespread and pipelines are needed across the board. At the oil hub in Cushing, OK, surging crude output has caused a glut and depressed domestic oil prices. To remove the glut (which has already been slightly reduced due to the lower part of the Keystone pipeline coming online), Enterprise Products Partners is working with Enbridge (ENB 1.04%) to expand the Seaway pipeline, which carries crude from Cushing to Freeport, TX.
Enbridge made a wonderful call in 2011 when it bought ConocoPhillips' 50% stake in the pipeline. Since then, the Seaway pipeline's flow has been reversed and its capacity increased from 150,000 bpd to 400,000. Even better, Enterprise Products Partners and Enbridge plan to more than double the capacity of the Seaway pipeline to 850,000 bpd by the second quarter of 2014. For both companies, the completion of the Seaway expansion will provide a very bullish short-term catalyst that investors will love.
Hugging the Gulf
The third major pipeline Enterprise Products Partners under construction is the Aegis ethane pipeline, which will deliver ethane from Beaufort, TX, to Louisiana. Enterprise Products Partners has to date received commitments to transport 200,000 bpd of ethane, with the hope of eventually expanding that to 425,000 (peak capacity). The first phase is scheduled to be completed by the third quarter of 2014, and the second by the second quarter of 2015.
Foolish final thoughts
Enterprise Products Partners owns all kinds of midstream assets, but these three pipelines in particular offer unit holders the best chance of distribution growth over the next few years. The past five years have been great, but the next half-decade will be even better. Investors looking for a solid 4% yield with upside should take a closer look at Enterprise Products Partners.
For Enbridge, partnering up with one of the largest players in the midstream space seems to have been the right move. As the Seaway pipeline keeps churning out more and more cash flow each year, expect Enbridge to continue increasing its dividend.