U.S. shale midstream companies could prosper in 2018

By Patrick C. Miller | December 26, 2017

U.S. midstream companies operating in the Bakken, Marcellus and other shale plays will get a substantial lift from incremental crude oil and natural gas production in 2018, according to a new report from East Daley Capital (EDC).

The Centennial, Colorado, energy assets research firm’s report indicates that anticipated increases in production in crude and natural gas will positively impact well-positioned midstream companies in 2018. Titled “2018 Guidance Outlook: Opportunities Abound for Midstream Investors,” the EDC report identifies key factors in the coming year that should provide a much-needed boost to the U.S. oil and gas midstream sector.

“The most influential midstream theme in 2018 is our forecast for significant oil and gas production growth,” said Justin Carlson, EDC vice president and managing director of research. “The main lag with production in 2017 has been the long lead time for contracting frack crews needed to complete the newly-drilled wells. We see that changing dramatically in 2018. We do not anticipate that being an issue next year as field service providers are really ramping up their frack fleets. Completions will increase significantly in 2018.”

According to the report, North Dakota’s Bakken formation will rebound from 2017 levels, greatly benefiting midstream companies in the region. EDC sees a turnaround in the Bakken because rig activity has increased steadily throughout 2017 as crude prices stabilized.

Given current prices, guidance from producers and service companies, and the stable forward curve, EDC forecasts that well completions in the Bakken will continue to grow, leading to robust basin growth in 2018. The company believes forecasted production growth will positively impact basin midstream companies such as ONEOK, Kinder Morgan, Targa, Enbridge and Tallgrass.

“The Marcellus will continue to be the best location for midstream companies exposed to natural gas,” Carlson said. “Production in the Northeast is poised to ramp up significantly in 2018 as new pipeline projects debottleneck the region. Given our optimistic forecast for Northeast gas production, midstream companies levered to the area such as Energy Transfer, MPLX, EQT Midstream, Williams, Antero Midstream and Rice Midstream should continue to benefit.”

Other key findings from EDC’s 2018 Guidance Outlook indicate that:

  • Impending 2018 midstream financial guidance announcements could deviate significantly from market expectations.
  • Overall adjusted-EBITDA forecasts skew positive vs. current market consensus, indicating midstream sentiment may be too pessimistic.
  • Pessimistic midstream sentiment, higher production growth and natural gas contract risk are three major themes that will drive the midstream sector in 2018.