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Enterprise Seeing Higher Volumes From Permian, Haynesville and Eagle Ford

Enterprise Products Partners LP’s management team said it believes higher rigs counts in the Permian Basin, as well as the Haynesville and Eagle Ford shales, will inexorably lead to higher oil and natural gas volumes flowing through its systems, beginning in the second half of the year.

The Houston-based limited partnership on Thursday reported slight increases in various pipeline volumes for 2Q2017. Natural gas pipeline volumes increased 0.8%, from 12.1 trillion Btu/d in 2Q2016 to 12.2 trillion Btu/d in 2Q2017. Pipeline volumes for natural gas liquids (NGL), crude oil, refined products and petrochemicals increased 3.8% during the same time frame, from 5.2 million b/d to 5.4 million b/d. NGL fractionation volumes rose 0.1%, from 840,000 b/d to 841,000 b/d.

"Looking forward, we believe the increase in rig counts and drilled, uncompleted wells will result in higher levels of production flowing into our system later in 2017," Jim Teague, CEO of Enterprise's general partner, said. "We are already seeing a volume response to producer activities in the Permian and Haynesville regions."

During the earnings call, Teague said the rapid development of U.S. shales has been "extremely disruptive" to global markets, including with more liquefied natural gas (LNG) exports on the market.Persistently low commodity prices, he said, make it clear that the high cost and high risk associated with lead-time projects of the past are unable to compete with the short lead-time and no-risk nature in U.S. shales.

"We believe the significant increase we've seen in rig counts, which have more than doubled in just the last year, will result in high levels of production flowing into our systems in the second half of this year, 2018 and beyond," Teague said. "We're already seeing a significant volume response to increased producer activity in the Permian, as you would all expect, but also in the Haynesville. We believe the Eagle Ford has turned the corner with its rig count up substantially, and we're beginning to see acreage change hands.

"While oil and gas prices are weaker than we'd like, production in the U.S. continues to increase and demand for hydrocarbons within the U.S. is expanding, as major long lead time projects -- such as crackers, gas-fired power plants and LNG exports -- ramp up."

Permian Midstream Expanding

Enterprise approved two large midstream projects in the Permian during the second quarter. Last April, the partnership launched plans to build the Shin Oak pipeline to carry NGLs from its Hobbs fractionation and storage facility in Gaines County, TX, to  Mont Belvieu, TX. The 571-mile, 24-inch diameter pipeline is to have an initial capacity of 250,000 b/d, expandable to 600,000 b/d.

Two months later, Enterprise said would add 300 MMcf/d of incremental capacity at its cryogenic natural gas processing facility in the Permian, which is currently under construction near Orla, TX, in Reeves County. Orla II, a second processing train at the facility, would double the inlet capacity of the facility to 600,000 MMcf/d. It would also double NGL extraction to 80,000 b/d.

Teague said Shin Oak pipeline is expected to enter service in 2019, while Orla II is expected in 3Q2018.

Last month, Enterprise also executed additional long-term contracts to provide transportation services on its Midland-to-ECHO crude oil pipeline system for the Permian. The agreements bring total commitments on its Midland-to-Sealy segment of the system, which is currently under construction, to 335,000 b/d, or 83% of the segment's capacity of 405,000 b/d. Total capacity of the segment would be 450,000 b/d, including 45,000 b/d of walk-up capacity.

"Two years ago when we announced Midland-to-Sealy segment of this pipeline, we said we believed in the basin and felt that the price was very strategic for Enterprise," Teague said. "We also said that we felt strongly that producer attitudes were changing -- where producers want price transparency and complete control of their barrels, including segregation, storage and access to markets that include refineries and export capability.

"Now as our Midland-to-ECHO pipeline comes into service, the producer community is solidly focused on completely controlling their own barrels and on exports being a permanent part of their own value chain..."

Enterprise reported net income of $666 million in 2Q2017, with limited partner net income totaling $654 million (30 cents/unit). For 2Q2016, the company had net income of $570 million, with its partners receiving $559 million (27 cents/unit). Operating income totaled $939 million in 2Q2017, a 12.2% increase from $837 million a year ago.

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