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Delays Are Finally Over: Enbridge Reports Strong Third Quarter 202112/07/2021
Midstream companies had a stunning third quarter. Management teams' confidence in their business is evident in dividend increases and buyback activity. As 2022 approaches, this was the first quarter in two years that no midstream index members cut their dividends.
The completion of projects signals strength to investors, and pipeline giant Enbridge Inc. triumphantly completed several in the third quarter, which included the $4 billion Line 3 Replacement project. It consisted of replacing an existing 34-inch pipe with a new 36-inch one for 13 miles in North Dakota, 337 miles in Minnesota, and 14 miles in Wisconsin.
Enbridge's Line 3 pipeline has been and will remain an important component of its transportation network, delivering crude oil to refineries and to end-users. As a result of the replacement of Line 3, Enbridge will be able to transport crude oil to refineries in Minnesota and neighboring states, as well as in eastern Canada and the Gulf Coast.
It can move up to 760,000 barrels per day of light and heavy crude and NGL and sits more than 1,000 miles from Hardisty, Alberta, to Superior, Wis., which shifts some of the heavy crude load from Enbridge's Mainline system to Line 3.
Nevertheless, Line 3 was not the only major project completed by Enbridge during the third quarter. Its competitors were fierce as well.
For example, a total of $100 million was spent on the Appalachia to Market and Middlesex Extension gas projects. While as a result of the $500 million Southern Access expansion from Superior to Flanagan, capacity rose by 200 000 barrels per day to 1.2 MM barrels per day. On top of that, the company had upgraded compression and installed new natural gas pipelines to boost the capacity of the 1,776-mile BC pipeline system in northeast British Columbia to about 3.5 Bcf/d from 2.9 Bcf/d.
Moreover, September saw Enbridge purchase Moda Midstream LLC in a $3 billion cash deal. For the notice, the newly renamed facility, Enbridge Ingleside Energy Center, was accounted for 25% of U.S. crude oil exports in 2020. And the fourth quarter of the current year should see modest tailwinds from Moda as well.
As part of the purchase, the Viola Pipeline near Corpus Christi, Texas, and a 20% stake in the Cactus II Pipeline were included. It is expected that Enbridge will generate about $305 million in adjusted EBIDTA from the new assets by 2022.
The potential for exponential growth is also there. As the Permian supply recovers through 2024, despite the port's overbuilt capacity for crude oil exports, East Daley's Crude Hub Model predicts increased demand for crude oil exports through the port and the Ingleside terminal.
Energy Transfer's lead in the world's NGL exports booked the company another successive quarter. With a global market share of almost 20%, the company is nigh unstoppable. But will it be enough to, finally, push the Mariner East project over the edge? If everything goes as planned, Mariner East's last segment could be operational by the end of the first half of 2022.
Williams boasts its Q3 results. With a revenue of $2.48 billion, the company beat the analyst estimate of $2.09 billion and also improved upon its own results over the same period in 2020. Mind you, much of this success was attributed to production in Wyoming's Green River Basin's Wamsutter Field and Williams JV with Crowheart.
Shareholder’s payout target was increased by 50% after the largest U.S. independent oil producer surpassed Wall Street’s earnings estimates on growing energy prices, said Houston-based Conoco Phillips Co. on Aug. 4. Due to Western sanctions on major producer Russia throttling energy supply amid a rebound in demand from pandemic lows, oil and gas #prices have soared. Crude has been trading more than 25% higher since the start of the year and results also benefited from high natural gas prices. Meanwhile, shares were down a fraction, to $91.03, in early trading but are up about 26% year to date. Conoco Phillips stated, that the average price obtained for a barrel of oil and gas accelerated 77% from a year earlier to $88.57. The company acknowledges that it has not hedged any of its oil and gas sales to make the most of higher market prices. The capacity of 1.69 million boe/d was in line with Wall Street estimates, however, the company expected the current quarter’s output would be between 1.71 million and 1.76 million boe/d.
California oil joint venture, Aera Energy, of Exxon Mobil Corp. and ShellPlc is being sold to German asset manager IKAV, according to the agreement of Sept. 1. Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of about $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval. However, the total transaction value was not disclosed. Being one of California’s largest oil and gas producers, Aera Energy accounts for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California, meanwhile, it persists a streak of divestments of mature oil and gas properties by the two supermajors. Aera Energy LLC operates about 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera took out about 95,000 boe/d. Exxon Mobil’s interests in the Aera oil-production operation in California contained a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. Moreover, Exxon Mobil affiliates have signed a separate agreement for the sale of an associated loading facility and pipeline system. The sale effectively ends Shell’s upstream position in California. The company reported that the divestiture is valued to result in a post-tax impairment of $300 million to $400 million, subject to adjustments.
The completion of the merger between Centennial Resource Development Inc. and Colgate Energy Partners II LLC happened on Sept. 1, sealing the debut of Permian Resources Corp., which is considered the largest pure-play E&P company in the Delaware Basin. Permian Resources’ idea was to combine two successful E&P companies, creating a better, stronger, and more strategically compelling company. Centennial and Colgate announced an agreement to merge in May, denying rumors that Colgate, a privately held independent Midland-based company, had been seeking an IPO. The merger estimated Colgate at about $3.9 billion and consists of 269.3 million shares of Centennial stock, $525 million of cash, and the assumption of approximately $1.4 billion of Colgate’s outstanding net debt. Permian Resources, being the combined company, has a deep inventory of “high-quality” drilling locations on around 180,000 net acres the companies anticipate will provide more than $1 billion of free cash flow in 2023 at current strip prices, in accordance with the company release on Sept. 1.