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As new shale plays have been discovered and developed over the past few years, they’ve helped exploration and production companies boost production tremendously. They’ve also created massive opportunities for midstream companies to provide the infrastructure necessary to support these beehives of activity.

Consider the Permian Basin in Texas, for instance. The play has been producing oil for decades, but the recent application of new technologies has drastically improved recovery rates. For instance, companies like Apache have seen tremendous success in the Permian by drilling longer laterals and employing a greater number of fracking stages.

Others have used secondary and tertiary recovery methods to coax more oil and gas out of the ground. For example, LINN Energy has utilized waterflooding, a technique that involves injecting hot water into a reservoir to drive oil and gas into nearby producing wells, in some parts of its Permian acreage.

As production from the basin has soared, pipeline companies have eagerly moved in to capitalize on the region’s growth. For instance, Sunoco Logistics Partners, which was acquired for more than $5 billion last year by Energy Transfer Partners , is currently under way with two projects to boost capacity on its existing West Texas pipeline system that serves the Permian Basin.

Similar opportunities await in other plays across the country. One major play worth watching is the Utica, a vast shale rock formation that spans parts of Ohio, New York, Pennsylvania, Virginia, and West Virginia. With several producers looking to ramp up drilling in the play this year, opportunities abound for midstream companies.

Infrastructure hurdles
With the exception of Chesapeake Energy , which drilled fairly actively in 2012 and currently has 14 rigs operating in the play, production growth for most Utica operators remained flat to moderate last year as many of them held off on bringing new wells online. The main reason why they’ve been reluctant to do so is because of infrastructure constraints.

Harry Schurr, general manager of CONSOL Energy’s CNX Gas operations in the Utica, explained: “I need pipelines… If I put a well in the ground, but I can’t transport (the natural gas), it’s not much good.” According to Schurr, pipelines are even more important than roadways and rail access for getting the Utica’s oil and gas production to market.

Well, it looks like a handful of midstream companies have heeded the call. As they form joint ventures to provide gas gathering and processing facilities, it looks like relief may soon be on the way for Utica producers.

New infrastructure projects in the Utica
For instance, NiSource , an Indiana-based company involved in natural gas transmission, storage and distribution, announced in July that it has entered into an agreement with affiliates of Hilcorp Energy, a privately held energy exploration and production company based in Houston, to build new gathering and processing infrastructure to support gas production in the Ohio and Pennsylvania portions of the Utica Shale.

The joint venture – Pennant Midstream, …read more
Source: FULL ARTICLE at DailyFinance

By Aimee Duffy, The Motley Fool

Filed under: Investing

Earlier this week Energy Transfer Partners announced it was buying Energy Transfer Equity‘s stake in ETP Holdco for $3.75 billion. ETE is the general partner to the master limited partnership ETP. That relationship, together with the similar names of all of these entities, can complicate one’s understanding of what exactly this acquisition means. With that in mind, today we’re going beyond the press release and breaking down this deal. For the sake of clarity, the Energy Transfer entities will be referred to by their respective ticker symbols.

Holdco refresher
ETP and ETE formed Holdco in October 2012 to jointly own the equity interests in Southern Union Company and Sunoco. ETE closed on the Southern Union merger in March of last year, while ETP closed on the Sunoco one in October. At the time of creation, ETE had a 60% stake and ETP had a 40% stake, though the majority board membership belonged to ETP.

Southern Union‘s assets are primarily natural gas pipeline systems. Its 15,000 miles include the Panhandle Eastern Pipeline Company, the Trunkline Gas Company, the Sea Robin Pipeline Company, Trunkline LNG Company, Southwest Gas Storage, and an operating interest in Florida Gas Transmission.

Energy Transfer previously announced that it was selling a portion of Southern Union‘s original asset base to Laclede for $1 billion. The assets involved in the divestiture were Missouri Gas Energy and the New England Gas Company. Additionally, ETE announced last month that it would sell Southern Union Gas Services to its other MLP, Regency Energy Partners , for $1.5 billion.

Sunoco’s assets include 4,900 gas stations and convenience stores and its stake in the midstream MLP Sunoco Logistics Partners . That stake is important; it is made up of 32.4% of SXL‘s limited partner units, as well as its general partner stake and incentive distribution rights. SXL‘s assets include more than 5,000 miles of crude oil pipelines, 2,500 miles of refined products pipelines, and 42 refined products terminals.

The other side of the deal
ETP obviously gets full control of all of the Southern Union and Sunoco assets. ETE will receive $1.4 billion in cash, and $2.35 billion in ETP units. ETE will forgo incentive distribution rights on the new units for the first eight consecutive quarters after the close. From there, it will receive 50% of the IDRs for eight consecutive quarters, then moving on to 100% receipt of IDRs.

Remember, many general partners forgo incentive distribution rights on big deals like this in order to give the MLP a chance to integrate assets and realize the commercial benefits of the transaction.

Foolish takeaway
Both Energy Transfer entities are touting this deal as a means to simplify organizational structure, and it certainly does that. Streamlining has been one of management’s goals, and following through on this is important. Especially given that one of management’s other goals is to increase distribution payments to investors.

Though its structure can be confusing, at its …read more
Source: FULL ARTICLE at DailyFinance

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