Why midstream names are bullish on the Marcellus Shale gas play (Part 4 of 6)
Crestwood Midstream Partners LP
Crestwood Midstream Partners LP (CMLP) is a midstream company that was borne out of a merger between Inergy (NRGY) and CMLP and currently owns and operates midstream assets reaching across the energy value chain, serving producers in premier shale plays including the Marcellus Shale.
CMLP’s assets in the Marcellus include 42 miles of low-pressure natural gas gathering systems, including the MARC I gathering pipeline and the North-South Pipeline, with a gathering capacity of 500 mmcf/d (million cubic feet per day) and 51,500 horsepower of gas compression. Through these assets, CMLP delivers natural gas into MarkWest Energy Partners’ (MWE) Sherwood Gas Processing Plant, Equitrans Midstream Company (EQM), and Dominion Resources (D). Note that both MWE and EQM are components of the Global X MLP & Energy Infrastructure ETF (MLPX), while Dominion Resources is part of the First Trust North American Energy Infrastructure Fund (EMLP).
CMLP’s Marcellus assets are supported by a 20-year gas gathering and compression agreement with Antero Resources (AR) that provides for a net acreage of approximately 136,000 net acres. The contract provides for annual minimum volume throughput guarantees through 2018.
Performance in the Marcellus in 2013
Crestwood’s operations and ongoing commercial and business development efforts in the Marcellus Shale remain a key driver of near-term and long-term growth. CMLP is significantly expanding its gathering and compression assets in the Marcellus Shale to facilitate Antero’s production growth targets in 2014 and beyond. In the fourth quarter of 2013, Crestwood installed an additional 175 mmcf/d of compression capacity with the completion of two new compressor stations, the Morgan and Perkins stations in the eastern area of dedication, and added a second phase to the West Union station in the western area. The completion of these projects brings total gathering capacity in the eastern area to approximately 600 mmcf/d and compression capacity in the western area to 125 mmcf/d as of December 31, 2013.
Also, Crestwood’s storage and transportation assets continue to perform favorably. During the fourth quarter of 2013 and in January 2014, Crestwood successfully re-contracted the full 7 Bcf of storage capacity that was up for renewal this year.
Plus, increasing volatility, driven by extreme weather and wider regional basis spreads, has resulted in continued strong market demand for Crestwood’s MARC I and North-South transportation assets. Crestwood anticipates that these market dynamics will continue and will create incremental opportunities for longer-term firm takeaway infrastructure solutions out of the region.
Key drivers of growth in 2013 for CMLP were 175 mmcf/d of new compression placed in service in the Marcellus Shale in 4Q13, leading to a 9% increase in gathering volumes and a 30% increase in compression volumes compared to 3Q13.
Capital spending in 2014
In 2014, Crestwood expects total capital expenditures in the Marcellus to be approximately $180 million to $220 million for the construction of four new compressor stations and additional pipeline laterals. Crestwood expects to exit 2014 with gathering volumes of approximately 750 mmcf/d and expects the annual average throughput for 2014 to be in the range of 600 mmcf/d to 620 mmcf/d. Plus, Crestwood continues to work with Antero on an incremental low-pressure pipeline, high-pressure pipeline, and compressor station projects.
Constructions in progress include 11 new laterals in early planning stages, which will become operational later in 2014 or in the first quarter of 2015. Five additional compression projects, totaling 263 mmcf/d, are also under construction and expected to come online over the next six months. Also, a new 120 mmcf/d Banner station plus two additional compressor stations are also on the planning horizon over the remaining 18-month Antero development period.
The sizable acreage provided by Antero provides Crestwood with the opportunity to realize substantial future growth as Antero continues to carry out its development plans in the Marcellus Shale even as Crestwood plans to spend ~$375 capex from 2014 to 2018 for the pipeline and compression expansion for Antero Resources.
Read on to the next part of this series to find out more about other midstream names operating in the Marcellus Shale.
Browse this series on Market Realist:
- Part 1 - Must-know: An investor’s guide to the Marcellus Shale gas play
- Part 2 - Why the Marcellus Shale is driving growth for Range Resources
- Part 3 - Why Williams Partners is strongly leveraged to the Marcellus Shale
- Investment & Company Information
- Marcellus Shale