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SemGroup, DCP Midstream Commence Open Season for NGL Pipeline

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SemGroup Corporation SEMG recently announced a binding open season along with DCP Midstream, LP DCP for the White Cliffs Pipeline and Southern Hills Pipeline, which will provide natural gas liquids (NGL) shipping services. The project is expected to connect Weld County, CO and Mont Belvieu, TX.

SemGroup plans to transform part of White Cliffs Pipeline system to NGL service, which will help the shippers from the DJ Basin to reach Cushing, OK. DCP Midstream will help the project by constructing a 25-mile long pipeline in the prolific basin, which will be connected to the White Cliffs. SemGroup will further extend the White Cliffs pipeline by 12 miles to connect it with the Southern Hills Pipeline. The project is supported by 10-year commitment from DCP Midstream and its unit, DCP Southern Hills Pipeline, LLC.

Notably, holding 51% interest, SemGroup is the owner and operator of the White Cliffs pipeline, while DCP Midstream owns 66% stake in the Southern Hills Pipeline. The project is anticipated to come online in 2019’s fourth quarter.

The binding open season will render potential NGL transporters in the DJ Basin an opportunity to score discounted rates against long-term volume commitments. The project is also expected to provide them open access to the markets in Texas Gulf Coast. The open season will be concluded on Jun 25.

Earlier, SemGroup stated that the cost of the project was estimated to be in the range of $60-$66 million and the company will pay 51% of it. Apart from a new source of revenue, the move is expected to diversify SemGroup’s portfolio. It will also elevate White Cliffs’ potential beyond crude while lowering its risk-profile. The project is also in line with DCP Midstream’s strategy to expand its value chains.  

Additionally, DCP Midstream has two more projects that are expected to come online in 2019: Front Range and Texas Express expansion.

Price Performance

Tulsa, OK-based SemGroup has lost 26.6% of its value in the past year while Denver, CO-based DCP Midstream has gained 13.3% against 12.3% fall of their industry.


Zacks Rank and Stocks to Consider

Currently, both SemGroup and DCP Midstream have a Zacks Rank #3 (Hold).

Investors interested in the Energy sector can opt for some better-ranked stocks in the same space like Nine Energy Service, Inc. NINE and Delek US Holdings, Inc. DK, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Nine Energy Service is an onshore service provider. For 2018, its bottom line is likely to be up 181.7%. In the last reported quarter, the company delivered a positive earnings surprise of 28.6%.

Brentwood, TN-based Delek is a downstream energy company. The company’s top line for 2018 is anticipated to improve 39.2% year over year, while its bottom line is expected to increase 194.4%.

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