Oil and gas pipeline executives used second-quarter earnings conference calls to highlight their proposed oil export projects that are racing to be the first to fully load the world's largest oil tankers on the Gulf Coast.
Executives also fielded questions about the impacts of slumping Appalachian shale gas prices and master limited partnerships' relationship to their current or former upstream sponsors.
S&P Global Market Intelligence listened to a wide range of midstream operators' earnings calls and compiled the most insightful and colorful comments on these and other issues. The standout quotes are in italics.
Gulf Coast crude exports
Enterprise Products Partners LP CEO Jim Teague compared the Houston Ship Channel's strategic importance to that of the Strait of Hormuz, where flaring geopolitical tensions are impacting the flow of oil cargoes.
"In many respects, the Houston Ship Channel is now just as important as Strait of Hormuz. I haven't seen any ships have bombs put to their hulls. I haven't seen any tankers chased. I haven't heard [Great Britain] talking about consequences," Teague said July 31. "The reason I haven't seen the price of oil skyrocket regardless of the tensions in the Middle East and around the Strait ... is because of what's happening in the U.S. from a production perspective, because we have this important waterway, the Houston Ship Channel."
The North American midstream giant is looking to take advantage of booming Permian shale production by building a deepwater terminal offshore Houston for accommodating Very Large Crude Carriers, which recently reached a final investment decision with Chevron Corp.'s backing pending federal authorization.
Enterprise's project could face competition from Energy Transfer LP, which is negotiating with potential shippers and closing in on a crude export project at its Nederland, Texas, hydrocarbons terminal that would be the 10th announced project for fully loading Very Large Crude Carriers on the Gulf Coast to keep up with rising international demand for U.S. crude.
"If you look at Nederland and you look at the amount of [pipeline] barrels that come in regardless of where the outlets are … it's an incredible terminal with I think the largest above-ground oil storage in the country, and ... offer[s] a significant advantage just from a supply source," Energy Transfer President Mackie McCrea said Aug. 8, citing connectivity to volumes from Canada; West Texas; and Cushing, Okla.
Appalachian shale gas prices
EQM Midstream Partners LP is looking forward to rebounding gas prices in the Marcellus and Utica shales as drillers such as EQT Corp., which owns a stake in the pipeline company's parent, prioritize capital discipline over growth at any cost.
"We expect there to be a period of either no production growth or, at best, very modest production growth ... but I don't mean that ... as something that's detrimental to the long-term benefit of our company," CEO and Chairman of parent company Equitrans Midstream Corp. Thomas Karam said July 30. "One of the trade-offs to that is ... now that we're going to have our largest customer with a very disciplined and concentrated development plan, we will be able to have more benefit to our free cash flow in this environment by being disciplined in our capital efficiency, so there will be meaningful mitigants with this lower production environment for us over the next 18 to 24 months."
The concern that Appalachian drillers will renegotiate their midstream contracts to get lower rates for gathering, processing and transportation while prices remain low is weighing on Antero Midstream Corp.'s stock price, which has dropped 31% so far in 2019 to settle at $7.25 per unit on Aug. 9. Paul Rady, chairman and CEO of Antero Midstream's general partner, said he is not worried about the company's direction.
"I think it's hard to impeach the business and we've got great rock ... We're well hedged and [have] a strong balance sheet," he said Aug. 1. "I think we're doing the right thing here. ... We don't control the stock price, obviously."
Evolving sponsor relationships
BP Midstream Partners LP, which priced its initial public offering in 2017, will consider all financing options when it is ready to acquire more midstream assets from BP PLC, but CEO and Director Robert Zinsmeister of BP Midstream Partners general partner declined to get specific.
"Like a lot of CEOs and M&A professionals, [I've] got a rolodex of bankers. I have three different banks with three different ideas of how to go about this, right? So I'll soberly reflect on that and, of course, will optimize the choice when we hit the market," Zinsmeister said Aug. 8.
Oasis Midstream Partners LP's emphasis on diversifying its supply source beyond parent Oasis Petroleum Inc. is the next logical step for the younger MLP that also launched in 2017.
"This is becoming a more significant portion of our cash flow stream," Michael Lou, president and director of Oasis Midstream's general partner, said Aug. 7. "At the IPO, we said, 'Hey, look, we've never really looked for that third-party growth, but we're going to start focusing on it,' and what you've seen is that we've gone from at the beginning of this year where it was pretty minimal third-party [business] to where by the end of the year it's going to be 20% [of our cash flow stream]."
Midstream companies will remain beholden to their upstream sponsors regardless of whether they are structured as MLPs, C corporation spinoffs or something in between, according to Nicholas DeIuliis, chairman and CEO of CNX Midstream Partners LP's general partner.
"The one thing that hasn't changed is, for better or for worse, those midstream entities are still tied strategically, financially and from a risk perspective to what [were] their prior upstream sponsors that currently are their largest customer," DeIuliis said July 30. "The assumption is they're going to stick and they're going to remain relevant whether we're an MLP, whether we're something else, whether the ownership is currently cast as it is or whether the ownership ends up being something entirely different."