Midstream Monitor

The emergence of the U.S. as a major producer and exporter of low-cost natural gas will force the global market to adjust its traditional business model, Charif Souki, Cheniere Energy Inc.’s chairman, CEO and president, told the Houston Producers’ Forum on Nov. 17. 
Marathon Petroleum Corp. (NYSE: MPC) poured $400 million of sweetener on its deal for MarkWest Energy Partners LP (NYSE: MWE) on Nov. 10. But a former MarkWest executive remained staunchly opposed to a deal that he said pays “pennies on the dollar” for the company. Marathon agreed to raise the cash contribution of the merger between its MLP, MPLX LP (NYSE: MPLX) and MarkWest to $1.075 billion from $675 million. The deal would make MarkWest a wholly owned subsidiary of MPLX. Some critics were not appeased. John Fox, former CEO, chairman and director of MarkWest Energy GP LLC, which manages the MarkWest MLP, wasn’t placated by the new offer.
The former chairman of MarkWest Energy Partners LP’s (NYSE: MWE) management company wants to scuttle a multibillion dollar merger between MarkWest and Marathon Petroleum Corp. (NYSE: MPC) and its MLP, MPLX LP (NYSE: MPLX). John Fox, former CEO, chairman and director of MarkWest Energy GP LLC, which manages the MarkWest MLP, questioned why the MLP is selling itself for “pennies on the dollar.” In July, Marathon and MPLX said they would purchase MarkWest Energy Partners for a deal then worth $15.7 billion.  
Neither the MLP structure nor the midstream sector itself are broken, a trio of finance experts told a packed house at Hart Energy’s inaugural Midstream Texas conference. Being stuck in a down cycle might make it appear that way, though. “I think some MLPs are broken but I don’t think the MLP space is broken,” said Peter Augustini, partner with Energy Spectrum Capital. “Some of the MLPs were wandering into the area where private equity was more appropriate.” The experts were responding to a question that challenged their relatively bullish outlooks for the sector, given upstream’s commodity price-induced doldrums. They emphasized that the MLP structure and the midstream energy sector were not one and the same, despite conditions that have brought the two together.
A reluctance to push forward with final investment decisions (FIDs) on LNG facilities during the commodity price downturn could result in a global gas shortage beginning in 2022, McKinsey Energy Insights forecasts in a new report, “Global Gas Outlook to 2030.” LNG demand growth will remain strong at 5% per year in the short term, McKinsey said, but be countered by surging supply from new liquefaction facilities coming online in Australia and the U.S. This will produce a continued loosening of the market, which could result in a pricing convergence for gas on a global scale that is a departure from the regionalized differences that developed between 2012 and 2014. That, however, could change over the long term.
The frost is on the pumpkin and the first chilly mornings of fall have kicked home furnaces on with a familiar “kuh-WUMPH.” At least many natural gas producers and transmission system operators hope that’s so as weather is the major factor impacting gas demand.
In a wide-ranging panel discussion, Sen. Heidi Heitkamp (D-North Dakota); Rep. Ted Poe (R-Texas); and Rep. Bill Johnson (R-Ohio) agreed that an all-or-nothing approach by industry won’t work. Heitkamp said there are “irrational” positions on both sides of energy issues.“I’m the 49th most liberal senator from the 50th most conservative state—I know about compromise,” Heitkamp said at the Washington, D.C., conference.Current energy issues “are no-brainers that would take five minutes to solve in a boardroom,” Heitkamp said, but added that government doesn’t work the same way corporations do. Congress has to hear and respond to multiple viewpoints. Unfortunately, energy issues now are falling into two, bitterly opposed camps and the energy industry will suffer if it doesn’t respond.“Energy opponents are in an irrational conflict with the oil and gas industry: They (energy) are the bad guys” in the view of environment activists, Heitkamp said. However, energy providers tend to want everything they seek and ignore their opponents. Thus, nothing gets done, she said.
During one unsettled stretch of business while he was chairman and CEO of The Williams Cos. Inc., Joe Williams observed, “Everything is for sale but my wife and my huntin’ dog—and I’ll talk to you about the dog.” “But at what price?” might be the question some Williams shareholders are asking after the firm announced a merger Sept. 28 with Energy Transfer Equity LP (ETE). Williams shares, as well as Energy Transfer units, fell sharply following the announcement. The agreed-to, $37.7 billion price was below a $53.1 billion offer ETE made in June that was rejected as “significantly undervalued” by Williams’ board at the time. However, the underlying value of the transaction remains close to the earlier bid, given the decline in the two firms’ stock market value in recent weeks. 
The big question on everyone’s mind is when are prices going to turn around; but the real question could be when does demand return? The current downturn isn’t so much akin to supply racing ahead of demand as it is to supply racing so far ahead of demand that it lapped it. In many ways the old conventions aren’t applicable: drilling efficiency has gotten to the point where the U.S. Energy Information Administration (EIA) and industry analysts are no longer relying on rig counts to forecast production output.
In a deal mode that has become reliable money for E&Ps in 2015, Matador Resources Co. (MTDR) has agreed to sell its midstream assets to EnLink Midstream Partners LP (ENLK) for $143 million.