Enterprise’s Texas Plans

As Eagle Ford Shale is gaining traction, pipeline companies and midstream operators are increasingly looking to the South Texas play for opportunities to build new pipeline systems. In order to handle the growing production volumes from the shale, Enterprise Products Partners (EPD - Analyst Report) announced several new construction projects in South Texas and Mont Belvieu, Texas as well as a fifth 75,000 BPD NGL (barrels per day, natural gas liquid) fractionator at the Mont Belvieu complex.

The initiatives mainly include installation of 350 miles of pipelines, building a new natural gas processing facility, and adding a new natural gas liquids fractionator at the Mont Belvieu complex near the Houston Ship Channel.

Enterprise also highlighted an expansion plan for its east-west rich gas mainline that will comprise three additional pipeline segments totaling 168 miles. After completing the expansion, the mainline system and associated laterals will comprise approximately 300 miles of pipelines and represent gathering and transportation capacity of more than 600 million cubic feet per day (MMcf/d).

The east end of Eagle Ford mainline will finish at its new natural gas complex where it will aim at deep ethane recovery and production of mixed NGLs by early 2012 in excess of 60,000 BPD. Texas properties will then have the capability to gather, transport and process almost 2.5 billion cubic feet per day (Bcf/d) of natural gas and produce more than 150,000 BPD of NGLs.

Moreover, a new 127-mile pipeline will be constructed in order to transport mixed NGLs from the new processing facility to the Mont Belvieu complex by early 2012. It will have the initial capacity of more than 60,000 BPD and is expected to provide over 120,000 BPD in the future.

We view the partnership as a core holding in an MLP portfolio given its strong balance sheet, liquidity position and investment grade credit rating. In addition, this announcement of the projects is reflective of the company’s focus toward its goal to incur $1.75 billion capex this year to fund several projects. However, we believe the possibility of lower natural gas volumes may hit the stock due to a sharp decline in the rig count and the partnership’s unhedged NGL exposure in 2010.

Read the full analyst report on EPD