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Enterprise: Shales, Liquids Driving Midstream Buildout

Among those midstream players scurrying to put assets on the ground is Enterprise Products Partners LP, which posted record earnings for the second quarter. During an earnings conference call COO Jim Teague enthused about growth in the Eagle Ford and Haynesville shales, as well as plans to move liquids out of the Marcellus.

"The Haynesville Shale continues to be one of the most prolific natural gas plays in the country, with 6 Bcf/d of production from 1,600 wells," Teague said. "Our analysis indicates about 250 wells have been drilled and are either waiting on completion or pipeline connections and that the Haynesville could ultimately produce 10 Bcf/d when fully developed."

To the southwest the Eagle Ford continues to shape up as well.

"The Eagle Ford continues to exceed expectations relative to drilling, production and reserve projections in both the rich gas and crude oil areas," Teague said. "All of our existing natural gas pipelines and processing facilities are chock-a-block full, and we're running over 125 crude oil trucks in order to keep up with the needs of our producer customers."

Attractive margins are driving producers and consumers to perpetuate a boom in natural gas liquids (NGL) while midstream infrastructure is running to keep up with demand, Teague said.

"Market fundamentals continue to support midstream margins, and investments in this segment are racing to keep pace with upstream and downstream announcements," Teague told financial analysts during a conference call. "Expansions range from new drilling and growing upstream production for natural gas, NGLs and oil, midstream processing, fractionation, storage and transportation and interestingly, downstream chemical plant expansions.

"Led by shale gas and shale oil, we're in a period of tremendous growth in the entire midstream sector. Benchmarks by which we have always measured industry performance in the past are now in uncharted territory."

Enterprise gross operating margin for the NGL pipelines and services segment was $498 million for the second quarter, a 13% increase compared to $441 million for the same quarter of 2010. Of that total natural gas processing and related NGL marketing recorded gross operating margin of $303 million for the second quarter compared to $268 million for the second quarter of 2010. The $35 million increase was largely due to an increase in NGL sales margins and fee-based natural gas processing revenues, the partnership said.

Gross operating margin from the partnership's NGL pipeline and storage business was $143 million in the second quarter compared to $139 million in the second quarter of 2010.

The NGL fractionation business reported record gross operating margin of $52 million for the second quarter compared to $34 million reported for the same quarter of 2010. The partnership's Mont Belvieu, TX, fractionators accounted for $11 million of the increase, largely due to volumes and revenues associated with a new fractionator, which began commercial operation late in the fourth quarter of 2010. Enterprise's Norco, Hobbs and South Texas fractionators also reported increases in gross operating margin.

These results contributed to record net income for the second quarter of $449 million (51 cents/unit) compared with $354 million (26 cents/unit) for the second quarter of 2010.

"Our 50,000-mile system of natural gas, NGL, refined products, petrochemical and crude oil pipelines continues to operate at record or near-record volumes, said CEO Michael Creel. "This performance was driven by natural gas, NGL and crude oil production growth in the shale regions as well as demand for NGLs by the U.S. petrochemical industry and international markets. All of our segments reported strong performance with the exception of our offshore segment, which is still being impacted by lower drilling activity in the Gulf of Mexico due to federal permitting issues."

The offshore Independence Hub platform and Trail pipeline reported an $8 million decrease in aggregate gross operating margin to $36 million for the second quarter. Volumes on the Independence system were 477 billion Btu/d compared to 635 billion Btu/d for the second quarter of 2010. Gross operating margin from Enterprise's other offshore gas pipelines declined by about $3 million. Total offshore natural gas pipeline volumes (including those for Independence Trail) were 1 trillion Btu/d for compared to 1.3 trillion Btu/d for the second quarter of 2010.

Enterprise has more than $5 billion of infrastructure projects under construction to link production growth from the shale areas to end-use markets and the nation's interstate natural gas pipeline grid.

The largest single project is the $1.5 billion Haynesville Extension of its Acadian Gas system. There are almost $3 billion in natural gas, NGL and crude oil infrastructure projects under construction in the Eagle Ford Shale.

The partnership is working to develop NGL pipeline projects to transport expected production from the Rocky Mountains, West Texas, Oklahoma and the Marcellus Shale region to the Texas Gulf Coast.

"...[I]t's become more and more apparent that Marcellus ethane producers need Gulf Coast chemical companies and those chemical companies on the Gulf Coast need Marcellus ethane," Teague said. "We have a pretty exciting project to bring this Marcellus ethane to the heart of the U.S. chemical hub in Mont Belvieu, and our discussions with shippers continue to advance and are gaining a lot of traction. The upside of this project makes us comfortable with a commitment threshold that's not fully subscribed but is accretive.

"We have a separate but very complementary project we're discussing with Gulf Coast petrochemical producers that would provide an extensive header system that would literally stretch 550 miles from Corpus Christi [TX] to the Mississippi River. This impressive project can be accomplished by utilizing existing pipes and adding a modest amount of new pipe. Our Marcellus project would connect into this new header, allowing Marcellus ethane to flow throughout the Gulf Coast.

"If we're successful with this project, chemical plants across the entire Gulf Coast could literally float their ethane needs on our header system, giving them access to growing ethane supplies all the way from the Rockies, including the growing Uinta and DJ [Denver-Julesburg] basins and growing rich gas supplies from the Permian to the Eagle Ford and to the Marcellus."

Other segments outside the midstream contributed to the company's overall $923 million gross operating margin which was up from the $809 million in the year-ago period.

Onshore gas pipelines and services reported a 51% increase in gross operating margin to $161 million from $107 million earned in the second quarter of 2010. Approximately $33 million of this increase in gross operating margin was attributable to the Texas Intrastate, San Juan and Haynesville Shale gathering pipeline systems.

Margin from the onshore crude oil pipelines and services business increased to $68 million from $26 million. With the exception of the Seaway pipeline, all of Enterprise's major onshore crude oil pipelines, storage assets and marketing activities reported an increase in gross operating margin on higher volumes and sales margins. The Seaway pipeline reported a $5 million decrease due to lack of demand to transport crude oil from the Gulf Coast to Cushing, OK.

Margin for the offshore pipelines and services segment was $54 million compared to $83 million in the same quarter of 2010, which included a $10 million benefit related to insurance proceeds. This segment continues to be impacted by lower exploration and development activity in the Gulf of Mexico due to federal regulatory issues. Enterprise's offshore crude oil pipeline business had gross operating margin of $19 million compared to $26 million for the second quarter of 2010.

Petrochemical and refined products services had gross operating margin $140 million compared to $158 million in the second quarter of 2010.

ISSN © 2577-9877 | ISSN © 2158-8023
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