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Enable Midstream Seeking NatGas Business Beyond Anadarko, Williston Basins

Enable Midstream Partners LP, lifted by increasing natural gas volumes from the Anadarko Basin's South-Central Oklahoma Oil Province (SCOOP), is looking for business ventures both in the Midcontinent and across the U.S. onshore, the company’s CEO said Wednesday.

CEO Lynn Bourdon talked about the opportunities the company is seeing within its current operations and elsewhere during a conference call. CFO Rod Sailor and newly installed Chief Commercial Officer Paul Weissgarber also joined in the conversation.

Bourdon lamented that in these uncertain days, the partnership had to reduce its workforce by about 10% and consolidate some operations at headquarters in Oklahoma City and in Houston. The decision to cut back was "difficult but necessary...to better position Enable for today's challenging market environment and strategically position us for future opportunities.”

Some opportunities are at hand, including the Bradley gas processing plant in Grady County, OK, a 200 MMcf/d capacity plant that should be in operation by early March for SCOOP producers. Construction is nearly done and commissioning has begun.

The facility "will bring much needed capacity to support our customer volume growth in the SCOOP area," Bourdon said. Enable began building Bradley last year and in September decided to double capacity (see Daily GPI, Sept. 3, 2014). The expansion now is scheduled for startup in early 2016.

"We are continually building gathering and compression infrastructure in the SCOOP, adding 47,000 hp compression in this area during the fourth quarter of 2014 and we have much more plans throughout 2015," Bourdon said. "Our Bradley lateral transportation project, which will provide transportation takeaway capacity out of the SCOOP, is moving forward" and estimated to be in service later this year.

From the end of 2013 through last September, Enable had added about 500,000 gross acres of SCOOP-area dedicated acreage. Enable now is "looking at really all the avenues for entering new basins," Bourdon told analysts. "We currently have some efforts underway right now that are more greenfield in nature...We have a really solid balance sheet, and we would look at acquisitions...

"We still think that sellers continue to want to see a premium on the sale of any assets. And in today's environment, we have to be very careful about what you do because it may be very easy to overspend on something..."

Enable was "engaged in a number of things last year, and we just never were at a point where we felt like the value that things were being transacted represent what we thought was good value...As far as basins, we like all of the big basins. We've got a big presence up in the Bakken, and we will continue to look to grow in that area. We obviously have a great position in the Anadarko Basin; we like Permian Basin, we like Marcellus. Those areas are very key areas.

"But we are not going to say 'no' to any of the other areas as well. If we find an opportunity, we would look in those as well."

Enable now has 11,900 miles of gathering pipelines, 12 processing plants with 2.1 Bcf/d of capacity, 7,900 miles of interstate pipelines, including a half-stake in Southeast Supply Header LLC. It also controls 2,300 miles of intrastate pipelines and eight storage facilities comprising 87.5 Bcf of storage capacity.

Weissgarber, who recently joined Enable after working for Devon Energy Corp./Crosstex Energy Inc.'s midstream venture EnLink, said since the end of September, 70 rigs have been dropped from the counties in which Enable is active or is expanding -- areas not only in Oklahoma, but also in the Bakken Shale. As of Wednesday, about 350 rigs were active in counties in which it is working.

“The largest rig count reductions have come from the Bakken, the Greater Granite Wash and SCOOP plays, offset by increases we have seen in the Cana-Woodford play," Weissgarber said. "Despite a reduction in the overall rig count, producers are still very active in our growth areas.

"Currently, we see 27 rigs in the SCOOP play," whose wells are to be connected to Enable's gathering systems. In North Dakota, 93% of the rigs in the state "are active in the counties in which we operate or constructing assets," Weissgarber said.

Based on current and forecasted SCOOP drilling activity, Enable is forecasting that more transportation takeaway capacity out of the area is going to be needed, but "the timeline for this project will likely to be longer than previously anticipated due to the delayed SCOOP drilling activity," he said.

Enable also is seeing new opportunities within the transportation and storage market, "driven by lower natural gas prices and the announcement of new natural gas-fired generation around our systems," Weissgarber said.

However, while the growth strategy remains unchanged, "we're already seeing instances where capital constraint competitors are reluctant to make additional infrastructure investments...We believe our ample liquidity and strong balance sheet will be a competitive advantage in this environment."

Natural gas gathering volumes in 4Q2014 were 3.36 trillion Btu/d (TBtu/d), down 2% from a year ago, primarily on lower volumes gathered on the Ark-La-Tex and Arkoma systems. The volume loss was offset in part by higher gathered volumes on the Anadarko Basin system, reflecting increased production from the liquids-rich SCOOP play. A lot of the decrease on the Ark-La-Tex and Arkoma systems is expected to be offset by payments under minimum volume commitment contracts.

Gas processed volumes in the last three months of 2014 totaled 1.64 TBtu/d, which was 14% higher than in the year-ago period. Again the gains followed growth on the Anadarko system, including from SCOOP. Gross natural gas liquids production was 64,060 b/d in 4Q2014, 5% higher year/year. Crude oil gathered volumes were 7,460 b/d. The partnership's first crude gathering system started initial operations in November 2013.

Interstate transportation firm contracted capacity was 7.77 Bcf/d in 4Q2014, down 1% year/year. Intrastate transportation average deliveries were 1.60 TBtu/d, up 1% from 4Q2013.

Few details were provided about capital expenditure plans for the year, but Sailor said $600-800 million is associated with current contracts and acreage dedications to support gas infrastructure growth across its four main areas: SCOOP, Bakken, Cana-Woodford and Granite Wash.

"We also estimate that up to $300 million of capital associated with identified opportunities in 2015," Sailor said. "These include opportunities or projects in both gathering and processing and transportation segments or in commercial negotiations."

Enable targets fee-based contracts on a firm basis when it's possible, the CFO said. For 2014, about 70% of gross margin was fee-based, with about half of that associated with firm or minimum volume commitment contracts.

"For 2015, we project that 88% of our gross margin will come from fee-based business or is the hedge percentage of our commodity business," Sailor said. "Enable has contractual provisions in some contracts...against low commodity price environments and volume decreases. For instance, some contracts have fee-based floors to commodity prices fall below certain levels...

"We anticipate that a 10% change in natural gas prices would result in approximately a $9 million change in gross margins, or a 10% change in natural gas liquids and condensate prices would result in approximately a $5 million change in gross margin."

Net income was 6% higher year/year in 4Q2014 at $122 million from $115 million. Distributable cash flow declined 12% to $119 from $135 million. Revenues in the latest period were down at $735 million from $824 million, while operating income increased to $134 million from $130 million.

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