This Week in Midstream
Aug 11th 2012 9:10AM
Updated Aug 11th 2012 9:16AM
Midstream assets, specifically pipelines and processing centers, play a crucial role in America's energy future. The industry is growing rapidly, and it may play a crucial role in the future of your portfolio. There are many companies to keep an eye on, and it's an industry worth watching. Here's a recap of this week's highlights and lowlights.
Many of the big midstream players reported second-quarter earnings last week, but a there were still a few left to trickle in between Monday and Friday. Plains All American (NYS: PAA) , Pembina Pipeline (NYS: PBA) , and DCP Midstream (NYS: DPM) all reported this week.
Plains All American reported great results on Monday. The company's second-quarter profit increased from $225 million last year, to $378 million this year. Earnings came in at $1.64 per unit, much higher than the company's May estimate of $1.17 to $1.46. Revenue also increased, up 10% to $9.79 billion, though it failed to meet analyst expectations of $10.62 billion.
Pembina Pipeline is still relatively new to American investors. The company only began trading on the NYSE at the beginning of April, after its acquisition of Provident Energy. But Pembina is the third-largest Canadian midstream company after its peers, TransCanada and Enbridge, and is worth having on your radar.
Second-quarter earnings were up to C$80.4 million, from C$48 million last year, though earnings per share declined C$0.01 to C$0.28 because of a large issuance of new shares related to the Provident acquisition. Revenue increased from C$512.4 million last year to C$870.9 million this year.
DCP Midstream also had a mixed quarter. The company reported an increase in net income, but a 36% decrease in earnings. Second-quarter results were affected by a $14.5 million writedown and the completion of a $200 million dropdown from its parent company, DCP Midstream General Partners. The master limited partnership increased its quarterly distribution 1.5% over its rate for the first quarter, to $0.67 per unit.
Plains All American also announced that it will be the operator in a midstream joint venture with Enterprise Products Partners (NYS: EPD) . The two companies are consolidating previously announced projects into a single, 50/50 crude oil pipeline JV in the Eagle Ford.
Once completed, the system will have a capacity of 350,000 barrels per day, though the companies already have long-term customer commitments totaling 210,000 bpd. Parts of the pipeline will be up and running by the fourth quarter of this year, while the complete system is expected to come online in the first quarter of 2013.
Buying up and dropping down
Kinder Morgan is moving along with its plan to drop down assets related to its El Paso buyout to Kinder Morgan Energy Partners (NYS: KMP) . On Monday, KMP announced that it will purchase $6.22 billion worth of assets from KMI, including a 100% stake in the Tennessee Gas Pipeline and a 50% stake in the El Paso Natural Gas pipeline.
The deal is expected to close sometime this month, with a retroactive effective date of Aug. 1. The Tennessee Gas Pipeline is a 13,900-mile pipeline system with a capacity of 7.5 billion cubic feet per day. El Paso Natural Gas is a 10,200-mile system with a capacity of about 5.6 Bcf per day.
Back in the game
Enbridge received approval from the Department of Transportation to restart Line 14, the pipeline that leaked 1,200 barrels of oil in Wisconsin two weeks ago. The company was required to meet stringent operating conditions before restarting, including establishing additional foot patrols along specific areas of the line, and a temporary reduction in operating pressure.
Enbridge has a big ol' bull's-eye on its back now, as Transportation Secretary Ray LaHood plans to hold weekly meetings with his agency to make sure Enbridge continues to comply with the terms of the restart.
Midstream is where it's at, folks. The energy industry will spend an estimated $130 billion to $210 billion expanding natural gas infrastructure over the next 20 years. After all, the more oil and gas that flows through those pipelines and processing centers, the more cash there is to flow into your pockets. Stay on top of all the midstream action by adding the companies above to My Watchlist.
The article This Week in Midstream originally appeared on Fool.com.Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy. Motley Fool newsletter services have recommended buying shares of Enterprise Products Partners. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
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