Re Baaken and OKS canceling major pipeline project
OKS announced cancellation of $1.8B pipeline that would have taken oil to Oaklahoma. In their commentary they talked about rails seeming to be satisfactory as a mode of transportation out of the Baaken. NGLS's short pipeline system becomes more valuable because it is moving oil to rail and other hubs for exit from the Baaken.
OKS could not get enough subscribers to the pipeline. OKS will be able to come back to the project at some point in the future since the pipeline was going to run along side their existing nat gas pipeline system meaning they had all their right of ways in place.
I suspect based upon growth of oil that producers will want a pipeline system eventually. Its hard to imaine rail and other transport being satisfactory once some higher level of production is reached.
To see OKS go into the Bakken with this big crude oil pipeline project when it did and then to see our Targa jump into the Bakken and a really new business area has been exciting...To me the OKS project has always been a stretch...the Bakken produces low sulfur or sweet crude much more suitable for east or west coast refineries which have relied on imported sweet crudes rather than those on the gulf coast which are based technically on heavy,sulfur ladened crudes from Valenzuela or canada..so why would a Bakken oil producer want to go with OKS when rail shipments elsewhere produce bigger bucks? I note that PAA which is really big in crude oil transportation and the Bakken now controls 6,000 railroad tankcars..at 500 barrels or so per tankcar that is a LOT of capacity! That Targa jumped into this in the face of the OKS project with a significant acquisition is IMO a really gutsy move that just might work out beautifully. I think the other great possibility is that Targa now has a presence in the Bakken that EPD and DPM don't.. Let's face it, Targa at best in the SW is the third banana to EPD and DPM in the collection,fractionation,and export of natural gas liquids. That neither DPM,nor EPD is currently a hitter in the extensive Bakken shale region means to me that Targa can build up in natural gas liquids,too, if the opportunity presents itself. And,hey, natural gas liquids can go by rail,too, to nearby Canada or in the case of propane be sold in the Dakotas for drying grains. To see Targa put in a fractionation tower in North Dakota at some point would not be a surprise. I have a bunch of bucks invested in MWE which is busily scoring like this in the Marcellus and Utica shales. Finally, let me note that I have never been impressed enough with OKS to invest any money. I do have money in Targa and add more as I get funds!
Remember Targa is a dominating force in the LA portion of the gulf. NRGM bought the Colt Hub in the Baaken a few weeks ago. I am very excited about the long term prospects for their entry into Baaken logistics. I have taken an initial position in NRGM. They raised a lot more debt than needed which appears to be enough to handle 2013 and 2014 capex growth.
With Baaken production at 728K barrels in 2012 and clear vision to 1M there is plenty of growth to go around. I like Targa better than DPM because Targa's GP dropped down all of its assets at very low ebitda multiples prior to TRGP going public themselves. Most of Targa's dropdowns when they were happening were at ebitdas as low #$%$5x. I went big into Targa because my sense was the GP while private decided the lower ebitda multiple dropdowns would reward the GP with much higher distribution growth at the GP level. Credit Suisse projects 27% annual distribution growth for the next three years; TRGP projects 32%. I also bought into TRGP believing in my thesis about the reasoning for the low ebitda multiples for GP assets to Targa. Warburg Pincus which owns a nice chunk of TRGP is going to be richly rewarded for their decisions with regard to TRGP dropdowns to NGLS.
DPM does not have the distribution growth of Targa and it is having to pay up in terms of higher ebitda multiples for its dropdowns. NGLS's dropdown story from its GP is over. So the entry into Baaken has great significance in terms of future direction.
OKS has more than doubled since I bought it in 2009. I am very impressed because OKS was able to find a way around the constant problem of Conway NGLs pricing differentials that was so detrimental to past earnings.