Enterprise Inks EOG Deals – Analyst Blog

Enterprise Products Partners L.P. (EPD), through its operating subsidiaries, entered into long-term agreements with EOG Resources Inc. (EOG) to provide diverse midstream energy services in South Texas Eagle Ford Shale. The contracts are mainly intended to accommodate EOG’s mounting crude oil and associated liquids-rich natural gas production in the region.

The company signed a 10-year firm transport agreement to build a new 140-mile, 350,000 barrel per day (BPD) capacity pipeline for transporting EOG’s crude oil production from the resource play. The pipeline has the capacity to meet EOG’s requirements as well as accommodate other Eagle Ford producers that it is considering.

The crude oil pipeline will originate from northwestern Karnes County, Texas, and extend to Enterprise ’s existing system in Austin County , where it will connect with the partnership’s Sealy station. Access to both the Houston refinery market and major domestic crude oil storage and trading center at Cushing, Oklahoma will be augmented with this new pipeline

Enterprise expects the pipeline to come online in early 2012 and will use trucks to provide crude transport services in the interim period.

Additionally, Enterprise will provide natural gas transportation and processing as well as natural gas liquid (NGL) transportation and fractionation services to EOG. This seven-year covenant permits Enterprise to construct 52 miles of additional pipeline laterals that will complement its previously announced Eagle Ford rich natural gas mainline project.

Enterprise will also provide natural gas processing services at its cryogenic gas processing facility, which has an initial capacity of 600 million cubic feet per day (MMcf/d). This processing plant is expected to begin service by mid 2012. The NGLs recovered from EOG’s gas volumes at the new plant will be transferred to its Mont Belvieu complex, where Enterprise will build a fifth NGL fractionator.

One of the most happening shale plays is Eagle Ford as many companies are actively exploring oil and natural gas. With a current production of approximately 300 MMcf/d of natural gas and 40,000 BPD of crude oil and condensate, this emerging South Texas resource play continues to beat industry expectations.

Enterprise is poised to benefit from its existing assets and new developments in packaged services to producers in emerging shale plays. With its diverse set of NGL, natural gas, and crude oil and refined products midstream infrastructure assets, the partnership possesses fundamental strengths, which will continue to support distribution growth consistently.

Enterprise remains the most prominent name in the MLP space. Its distribution growth prospect is closely linked to the successful completion of organic growth projects. The partnership is most active in this front, which is reflected in its premium valuation. However, Enterprise ’s operating margin has been lagging its peers.

Consequently, our Neutral recommendation for Enterprise units remains unchanged with the Zacks #3 Rank (Hold).