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Sanchez Midstream & Targa Expand JV, Eye Eagle Ford Growth

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Sanchez Midstream Partners LP recently announced that the partnership and Targa Resources Corp. (TRGP - Free Report) merged each of their 50% interests in the entities, which possess the Carnero gathering line and Raptor gas processing facility, in order to expand their joint venture (JV). The primary purpose of the deal is to support the production growth in the western Eagle Ford Shale.

The existing JV was created in 2015. Following the latest deal, the JV will now own Targa’s Silver Oak II Gas Processing Plant of 200 million cubic feet per day (MMcf/d), which is located in the Bee County, TX. The move will likely enhance the JV’s processing capacity to 460 MMcf/d from 260 MMcf/d. It also owns the Carnero gathering line that has a design limit of 400 MMcf/d, without compression.

The deal also includes Sanchez’s 315,000 gross western Eagle Ford acres located in Comanche, which will be dedicated toward the JV. The agreement with Targa will enable Sanchez to process its Comanche volumes uninterrupted.

Moreover, the deal is expected to simplify the previous combination between the two companies and increase the efficiency in their operations. Also, the inclusion of Targa’s Silver Oak II will enable the JV to address the rise in volumes from the western Eagle Ford’s increased activities, without spending any money further.

Additionally, the deal is anticipated to append a more stable, fee-based cash flow to Sanchez Midstream in the long run. However, Sanchez Midstream expects that there will be no immediate material impact of the deal on the partnership’s 2018 guidance. 

Price Performance

Houston, TX-based Sanchez Midstream has lost 17% in the past year against 11.3% rise of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, Sanchez Midstream has 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 - Free Report) and Delek US Holdings, Inc. (DK - Free Report) , 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 199.2%.

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