Liquids-rich gas and high initial production rates from oil wells are driving red hot interest in the Eagle Ford Shale, and this is only bolstered by the region’s established midstream infrastructure and proximity to energy markets, Fitch Ratings said in a new report. More isolated shale basins need costly “mega pipelines,” which are tougher on credit ratings, Fitch said.
“Eagle Ford shale provides some of the highest returns of any unconventional play in the U.S.,” the ratings agency said. “Furthermore, producers and infrastructure developers face relatively less environmental, political and regulatory obstacles in energy-friendly Texas than in competing shale basins such as the Marcellus and Utica.”
The ramp-up in Eagle Ford production has spurred development of gathering, processing, fractionation, storage and transportation infrastructure. Numerous oil and natural gas-related projects are to be completed in late 2012 to mid-2013.
“Given the ability to piggyback off existing infrastructure, many Eagle Ford projects are of more limited size, often laterals to or expansions of existing networks,” Fitch said. “These pipeline expansions can have lower developmental and operating risk and quicker payback than ‘mega pipeline’ projects being built to serve other more isolated shale basins.”
The credit quality of the Eagle Ford producers contracting for midstream services and new pipeline capacity is mixed, Fitch said, with some high-rated entities and a number of smaller, below-investment-grade companies. “However, as with other low-cost basins, Fitch Ratings believes counterparty exposure is mitigated by the likelihood that profitable and expanding regional production would continue to flow for gatherers and shippers, even in the extreme event of a producer bankruptcy,” the ratings agency said.
And spending in the Eagle Ford is easy on the credit ratings of midstream companies, Fitch said, even though individual investments in the region can be significant. The ratings agency cited plans by Enterprise Products Partners LP and Energy Transfer Partners LP to spend $7 billion in aggregate on regional projects. However, Fitch said, “no single issuer has outsized exposure to the region, and investments in the play are not seen as ‘make or break’ commitments for individual issuers. This contrasts with the Marcellus play, which is a dominant investment theme for issuers such as MarkWest Energy Partners LP and EQT Corp.”
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