Enterprise Products Partners L.P. (EPD) signed a long-term agreement with two producers in the South Texas Eagle Ford Shale to provide midstream services in the area.
Under the 10-year agreement, the partnership will provide crude oil transportation as well as marketing services to the operators, who have committed to supply 50,000 barrels of crude oil on a daily basis through Enterprise’s latest 140-mile, 24-inch diameter crude oil pipeline. However, the pipeline has the capacity of 350,000 barrels per day (bpd) and will cover major storage hubs and refining centers.
Enterprise also highlighted that most of the pipeline’s accessible capacity was already under commitment for the next 10 years. The pipeline is scheduled to come on-stream in the second quarter of 2012.
Eagle Ford is one of the most prolific shale plays in U.S., where many companies are actively exploring oil and natural gas. With a current production level of approximately 80,000 bpd of crude oil and condensate, this emerging South Texas resource play holds 500 drilled wells with 150 operating rigs.
Additionally, the partnership outlined its strategy for a new crude oil storage facility, the Crude Houston terminal, to accommodate growing production from the Eagle Ford Shale in South Texas. In a 150-acre tract in southeast Houston, the construction mainly aims at facilitating the refiners in the Houston area. Enterprise expects the total infrastructure to come online in mid-2012.
Enterpriseis poised to benefit from its existing assets and new developments in packaged services to producers in emerging shale plays. With its diverse set of natural gal liquid, natural gas, and crude oil and refined products midstream infrastructure assets, the partnership possesses fundamental strengths, which will continue to support distribution growth consistently.
The distribution growth prospect of Enterprise 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, we believe that these factors are effectively reflected in the present valuation, leaving little room for meaningful upside from current levels. Further, intense competition from MLPs (master limited partnerships) such as Kinder Morgan Energy Partners L.P. (KMP), Enbridge Energy Partners (EEP) and Energy Transfer Equity (ETE) is a cause for concern
Consequently, our Neutral recommendation remains unchanged and Enterprise currently holds a Zacks #3 Rank (short-term Hold rating).
ENBRIDGE EGY PT (EEP): Free Stock Analysis Report
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