According to Hart Energy's annual rankings of top natural gas processors producers for 2010, ExxonMobil Corp. was the top processor for the for the fourth straight year, while DCP Midstream LLC was the top NGL producer in the rankings.

Top processor and natural gas liquids producers' rankings saw little movement at the top. One thing that was consistent was that production of both natural gas and natural gas liquids (NGLs) increased in 2010 from 2009 as prices and demand improved. In addition, companies benefitted from producers increasing production from several plays, especially liquids-rich plays.

Although the processor rankings were again dominated at the top by two majors—ExxonMobil Corp. and BP Plc—the gap began to be closed by the ranked master limited partnership (MLPs) and midstream companies on the list.

NGL processing increases

The biggest gain in processed volumes was posted by ExxonMobil, which experienced a 31% increase from 9.3 billion cubic feet (Bcf) per day to 12.1 Bcf per day. Although oil clearly remains ExxonMobil's bread-and-butter business, its interests in natural gas have been increasing in recent years, most notably through the $41 billion, all-stock acquisition of XTO Energy in 2010.

"Our expectation for gas in the U.S. is it will be healthy in the years to come," Rex Tillerson, the company's chief executive, told CNBC in April. "It's going to be extraordinarily important as a fuel source in the U.S., and we're very, very happy with the resource position we have and extremely happy with the organization that we acquired as well."

"ExxonMobil believes that natural gas is a particularly attractive fuel source for power generation for several reasons," Mark Albers, the company's senior vice president, said during the keynote address at Goldman Sachs' Energy Conference in January. "It's abundant. It produces up to 60% less CO2 than coal. Gas-fired power plants are based on proven technology. They could be built quickly, they're cost-effective today and under a wider range of carbon-cost scenarios."

He added that by 2030, ExxonMobil anticipates natural gas will be the second-largest global fuel because of these advantages.

The second-largest increase in processing volumes was posted by Encana Corp. with a 12% uptick from 2.8 Bcf per day in 2009 to 3.2 Bcf per day in 2010. However, its 2009 figures were compiled on a pro-forma basis due to Encana's split into two companies, Encana and Cenovus, at the end of 2009. Cenovus Energy Inc., an integrated oil company, took some of the previously combined company's natural gas assets and production volumes with it in the split.

Although Encana, like many other producers, has been focusing more on liquids rather than natural gas because of the significant cost advantages involved, its processing volumes remain strong because of the location of its processing plants. Additionally, the company remains active in the following natural gas resource plays: East Texas, Fort Worth, the Haynesville shale, the Jonah field and the Piceance Basin.

In 2010, the only regions in which Encana experienced a decrease in natural gas production were in Fort Worth and the Jonah field, which have experienced drop-offs in activity due to lower gas prices.

Encana was one spot out of the top NGL producers rankings, and it is liquids production that is expected to represent the largest area of growth. In recent years the company has been one of the more active players in Canada's Horn River Basin and Montney shale, but it is the liquids-rich Duvernay shale in western Canada that could be the most significant region of growth for the company.

The company holds roughly 190,000 acres in the play, which Michael Graham, its executive vice president and president of its Canadian division, said could be similar to the Eagle Ford. Encana anticipates spending roughly $1 billion on liquids recovery efforts in 2011.

Meanwhile, Crosstex Energy Services remained number 10 in the top processors list, but had the largest increase in processed volumes for 2010, increasing 11% to 1.3 Bcf per day from 2009. Although Crosstex was actively divesting non-core assets in years past, 2011 has seen the company focus more on growth projects in its current areas of operation, including the Barnett and Permian basins.

These projects include a 50-50 joint venture with Apache Corp. in the Permian that will include the construction of an $85 million, 50 million cubic feet (MMcf) per day natural gas processing plant that is expected to begin operations in second-quarter 2012.

NGL processing decreases

Only three of the companies ranked in the top processors rankings experienced a decrease in processed volumes for 2010. Chevron Corp. has the largest drop-off at 7%. The company's volumes fell to 1.5 Bcf per day as the company made the decision to focus more on liquids.

"I think, like others, we are leaning where possible toward the liquids side …That only makes sense, of course, with the low gas prices," said George Kirkland, the company's vice chairman and executive vice president, global upstream and gas, speaking at a recent Barclays CEO Energy Power Conference.

Kirkland added that, in accordance with this strategy, the company would be focusing on opportunities in the aforementioned Duvernay shale in Canada as well as the West Virginia portion of the Marcellus, which is liquids-rich, in addition to the Utica shale.

BP remained the second-largest gas processor in the rankings for the fourth consecutive year, but its volumes decreased for the first time in the rankings, dipping 1% to 8.40 Bcf per day from 2009's 8.49 Bcf per day. It is possible that 2011 may see further decreases in processed volumes due to the first-quarter sale of its Wattenberg processing plant in Colorado as the company sought to focus on core assets.

Much of BP's strategic moves throughout the past year point to these core assets not involving as much North American midstream infrastructure as in years past. In addition to the sale of its Wattenberg plant, the company had also been considering divesting its Canadian NGL operations and canceled its proposed Denali pipeline joint venture with ConocoPhillips that would have transported natural gas from the North Slope of Alaska into the Lower 48 states.

The only other company in the top processor rankings to experience a drop in processing volumes was DCP Midstream, which experienced a small drop from 5,072 MMcf per day to 5,071 MMcf per day. This change isn't the result of a change in company direction as much as it reflects the directions of producers who have increased liquids production over gas production.

DCP Midstream's philosophy is centered on creating critical mass in each region it is located, allowing demand to be driven by customers. This applies to what products its customers are focused on producing at any given time, whether it be dry gas or liquids.

"We are a derived demand," explained the company's chairman and chief executive, Tom O'Connor. "We still have projects going on, but they're really customer-driven. Due to the legacy footprint, which was liquids-centric for years, we're now seeing a tremendous amount of activity with the rigs coming to us."

Similar approach

A similar approach is taken by Enterprise Products Partners LP, the largest publicly traded energy partnership and the largest pure midstream company in the top processor rankings.

Enterprise's strategic approach centers on offering contiguous integrated services for natural gas, NGLs, crude oil and refined products from the point of production to the point of consumption, which has allowed the company to provide a presence in nearly every major producing region of the country. This approach helped the company increase its processed volumes 4% to 5.5 Bcf per day in 2010 from 5.3 Bcf per day in 2009.

"It's opportunities [from advantageous pricing] that continue to provide us with linkage and expansion projects across the business lines," said James Teague, chief operating officer and executive vice president, during the company's first-quarter 2011 earnings call. "We believe these fundamentals will remain strong. Across our businesses in crude, natural gas, NGLs, refined products and petrochemicals, we remain disciplined in pursuing projects that integrate well with our existing system of assets."

Also, should Southern Union's board of directors accept either of the proposed acquisition offers on the table from Williams Cos. and Energy Transfer Equity, it would see the prospective new owners jump into the annual rankings, as Southern Union has been a perennial top gas processor and top NGL producer. In 2010, the company's processing volumes increased 7% to 4.2 Bcf per day from 3.9 Bcf per day in the previous year.

Beginning in 2013, the company's processing volumes are expected to increase at a greater extent once its $235-million Red Bluff project is completed. This includes a 200 MMcf per day processing plant that is designed to handle volumes out of the Avalon shale, Bone Spring and Wolfcamp plays in Texas and New Mexico.

NGL production increases

While Hart Energy's annual top gas processor rankings for 2010 saw few changes from the previous year, the top NGL producer rankings for 2010 had several significant changes as producers and midstream operators focused more on liquids due to the large price advantages that offers.

Not only did DCP Midstream maintain its ranking, the company also maintained a large gap between itself and the second-ranked NGL producer as it saw production increase 3% to 368,931 bbl. per day in 2010 from 358,000 bbl. per day in 2009.

The company saw NGL production increase in liquids-rich plays in which it had super-systems that give it a dominant position, including the Eagle Ford, in which it is building such a system. It is also expanding its operations in other liquids-rich portions of the DJ basin and the Woodford and Avalon shales.

Moving up to second place in the rankings of the top NGL producers was Enterprise Products Partners, which, after adjusting its 2009 figures, was also moved up in the rankings for that year. The company's numbers now reflect production from all company-owned facilities.

Enterprise's NGL production increased 3% to 272,000 bbl. per day in 2010 from 263,000 bbl. per day in 2009. This production is likely to continue to grow in the future as the company recently announced plans to add a sixth fractionator at Mont Belvieu to handle increased volumes from the Eagle Ford. This new facility will increase its NGL production at the hub by 75,000 bbl. per day.

When the fractionator is brought online in 2013 it will increase the company's total fractionation capacity at Mont Belvieu to 450,000 bbl. per day and its overall system capacity to more than 780,000 bbl. per day.

"The announcement of our third fractionator at Mont Belvieu in less than two years is yet another indication of the robust demand for Enterprise's midstream services to handle increased natural gas production from the expanding shale plays," said Teague. "As with our fifth Mont Belvieu fractionator, which is currently under construction and scheduled to be completed in fourth-quarter 2011, the sixth unit is expected to be fully contracted when it begins service."

Teague added, "The additional capacity at Mont Belvieu will give us the capability to handle approximately 75,000 bbl. per day of mixed NGLs currently being diverted to Louisiana for fractionating, as well as an incremental 30,000 bbl. per day of y-grade from the Phase II expansion of our Yoakum processing facility in Lavaca County, Texas."

As noted in the previous annual rankings, both ExxonMobil and BP were not included in the top NGL producer rankings because they do not separate their NGL production from their total liquids production. As such, Hart Energy is unable to rank them in the top NGL producers' rankings, although it is fairly certain that all three would be included in the list. Additionally, as of the publication date, Hart does not have the final figures for either Aux Sable or Enbridge, which are likely top 10 NGL producers. Once these figures are obtained, the rankings will be updated and published.

MarkWest Energy Partners LP posted the largest gain in NGL production by any of the Top NGL Producers. In 2010, NGL production increased 15% to 55,362 bbl. per day from 48,059 bbl. per day. Much of the company's growth in the past year has been focused on the Marcellus shale, which includes the 60,000 bbl. per day Houston, Pennsylvania, fractionation facility. This is the largest fractionation complex in the Northeast. The company has been active in the Appalachian basin for years and has been increasing its focus on liquids production recently.

"Being able to capture value from liquids is the sweet spot for us," said Frank Semple, MarkWest chairman, president and chief executive, at Hart Energy's Marcellus Midstream conference in March 2011.

Southern Union had the second-largest increase in NGL production in 2010, as its volumes increased 11% to 46,471 bbl. per day from 42,065 bbl. per day in 2009. Should Williams' proposed acquisition of the company prove to be successful, it is possible that the combined companies would be the second-largest NGL producer as their combined production figures would have surpassed Enterprise's figures in 2010.

Williams' production improved 6% to 174,000 bbl. per day, which pushed the company to the number three position in the rankings, ahead of Chevron, which saw production remain flat at 161,000 bbl. per day.

Coming in behind Williams and Chevron was Targa Resources Partners LP at 121,200 bbl. per day, up 3% from 2009 when its production was 118,300 bbl. per day as the company increased its focus on liquids.

"We continue to benefit from very strong industry fundamentals across all of our businesses and are solidly focused on execution to capture the growth opportunities," said Rene Joyce, chief executive, during the company's first-quarter 2011 conference call. "Technology-driven E&P activity is driving growth in liquids-rich natural gas production for our gathering and processing operations. The growing NGL supply profile in turn drives our fee-based downstream business, and investment opportunities are abundant in both areas."

Methodology

In an effort to avoid double counting production in the rankings, Hart Energy defines NGL production and processed gas as the total first-party output by the owners of the production facilities. Hart Energy and other industry experts think this is the most reliable way to avoid double counting production held by minority owners of plants and liquids output retained by producers under fee contracts.

To compile both rankings, Hart Energy gathered North American gas processing and NGL production volumes from public data as well as from the companies themselves. If the figures were not already in cubic feet per day and barrels per day, Hart Energy converted them into these formats. In addition, it organized a vetting group composed of industry experts and analysts to review the data. No member of the group is employed by any of the ranked companies.

Hart Energy has made every reasonable effort to ensure the veracity of this information. Neither Hart Energy Publishing, Midstream Monitor, Midstream Business, nor any other party involved in the presentation of this material will be held liable for any errors or omissions.