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EnLink Sees Higher Natural Gas Prices Setting Up Substantial Production Growth in 2023
Higher commodity prices are driving double-digit natural gas volume growth in the Permian Basin for EnLink Midstream LLC, but the turnaround in Oklahoma production is “perhaps the most impressive,” according to management.
“The volume story out of Oklahoma continues to brighten as producers have responded to the improved pricing environment,” said EnLink COO Ben Lamb earlier this month during call to discuss first quarter earnings.
Average natural gas gathering volumes for 1Q2022 were 7% higher year/year, according to EnLink. Natural gas processing volumes were 8% higher when compared with the first quarter of 2021.
Lamb cautioned that because of the timing of wells coming online, EnLink management expects a modest decrease in volumes in the second quarter. “That said, producer activity within our footprint has consistently remained at a high level this year, and producer plans call for increasing activity.”
As a result, EnLink management now expects Oklahoma to return to “meaningful” volume growth in 2023. Lamb said the company’s assets are well positioned for the growth. The midstream company may be able to accommodate about 25% more processing volumes, even after EnLink relocates one of its gas processing plants in Oklahoma to the Permian.
“That’s a substantial increment,” CEO Barry Davis added.
Beyond that, there is excess capacity still in the Permian beyond EnLink’s excess capacity, according to Davis As a result, management does not see a need to add incremental processing capacity on the horizon.
“Now, if we have multiple years of this price environment, and we see a further increase in activity, perhaps that changes. But it’s not on the cards today,” Davis said.
Continued Permian Growth
Project Phantom would relocate an underutilized natural gas processing plant to the Permian’s Midland sub-basin, adding about 200 MMcf/d of processing capacity. The relocation is expected to cost about $80 million, representing around 50% savings over illustrative newbuild costs, according to EnLink. The relocation is expected to be completed by the end of the year.
“Producer momentum across our footprint has remained strong, setting the stage for solid growth in 2022 and end of 2023,” Lamb said of Permian activity.
EnLink recorded an increase of about 46% year/year in average natural gas gathering volumes in the Permian during 1Q2022. Average natural gas processing volumes during the quarter were about 43% higher compared with 1Q2021.
“Importantly, our systems are well established to handle this growth with the additions of the War Horse and Tiger plants, both of which came online in the fourth quarter of 2021,” Lamb said.
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Davis noted that the progress made over the past several quarters “is impressive,” with the outlook for the remainder of the year and beyond continuing to strengthen. “Our business is clearly benefiting from the supportive commodity price environment…However, the strong execution by our team has amplified the benefit from higher commodity prices.”
EnLink’s management team is beginning to think about what the steps may be in the Permian after the Phantom plant relocation, according to Davis. The CEO indicated that all the same options considered when the decision was made to relocate Phantom “would be on the table for the next step.”
Louisiana Opportunities Too
EnLink also reported strong volumes in Louisiana, both in gas and natural gas liquids (NGL). The company saw near-record NGL fractionation volumes and robust industrial demand during the first quarter.
Russia’s invasion of Ukraine adds another layer of opportunity for EnLink, according to management. Lamb noted that there is going to be a call on North American natural gas driven by the recent geopolitical events. “It’s going to take a number of years for our industry to meet that call, and it’s going to create opportunities.”
To that end, management is “always looking for ways to make efficient capital investments in our Louisiana downstream facing businesses,” according to Lamb. The COO noted EnLink’s Bridgeline pipeline system, which connects with Venture Global Inc.’s TransCameron pipeline. The 24-mile pipeline delivers feed gas to the Calcasieu Pass liquefied natural gas export terminal.
“There is nothing we love more than doing projects like those. And so, we’re very keen to find our next steps in Louisiana,” Lamb said. “That’s the great thing about our Louisiana platform – it puts us right in the middle of where those opportunities are going to happen on the Louisiana Gulf Coast.”
Given the positive outlook for the remainder of the year, EnLink raised its full-year guidance. The company now expects to report full-year net income of $315-375 million, up from $230-310 million in previous guidance.
Based on current producer activity and plans, the midstreamer expects to spend $325-365 million on capital projects in 2022. These projects leverage existing infrastructure and have high expected returns and quick paybacks, according to management.
EnLink also boosted its projected free cash flow after distributions to $320-370 million. It repurchased $23 million of common units during the first quarter.
EnLink reported 1Q2022 net income of $66.0 million (7 cents/share), up from $13 million (minus 3 cents) in the year-ago period.
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