ExxonMobil Tops Midstream Monitor's Gas Processors Rankings For Fourth Straight Year

Hart Energy’s Midstream Monitor and Midstream Business are proud to present our annual rankings of the Top Gas Processors and Top NGL Producers for 2010. For the fourth straight year ExxonMobil was the top processor and DCP Midstream was the top NGL producer in the rankings (which were previously compiled in Gas Processors Report).

While the rankings saw little movement at the top, one thing that was consistent was that production of both natural gas and 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.

Though our processor rankings were again dominated at the top by two majors -- ExxonMobil and BP, the gap began to be closed by the ranked MLPs and midstream companies on our list.

The biggest gain in processed volumes was posted by ExxonMobil, which experienced a 31% increase from 9,273 million cubic feet per day (MMcf/d) to 12,148 MMcf/d. 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. 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,” Rex Tillerson, the company’s chief executive, told CNBC in April.

“ExxonMobil believes that natural gas is a particularly attractive fuel source for power generation for several reasons. 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,” Mark Albers, the company’s senior vice president, said during the keynote address at Goldman Sachs’ Energy Conference in January. 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 with a 12% uptick from 2,840 MMcf/d in 2009 to 3,184 MMcf/d in 2010. However, its 2009 figures were compiled on a pro-forma basis due to Encana splitting into two companies, Encana and Cenvous, at the end of 2009. Cenvous, 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 our 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.

Crosstex Energy Services remained in 10^th place in our Top Processors listings, but had the largest increase in processed volumes for 2010, increasing 11% to 1,330 MMcf/d 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 basin.

These projects include a 50/50 joint venture with Apache Corp. in the Permian that will include the construction of an $85 million, 50 MMcf/d natural gas processing plant that is expected to begin operations in Q2 2012.

Only three of the companies ranked in our Top Processors rankings experienced a decrease in processed volumes for 2010 with Chevron having the largest drop-off at 7%. The company’s volumes fell to 1,507 MMcf/d 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,” George Kirkland, the company’s vice chairman and executive vice president, global upstream and gas, said at the 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 our rankings for the fourth consecutive year, but its volumes decreased for the first time in our rankings, dipping 1% to 8,401 MMcf/d from 2009’s 8,485 MMcf/d.

It is possible that 2011 may see further decreases in processed volumes due to the Q1 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 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 our Top Processor rankings to experience a drop in processing volumes was DCP Midstream, which experienced a small drop from 5,072 MMcf/d to 5,071 MMcf/d.

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. We still have projects going on, but they’re really customer-driven. Due to our legacy footprint, which was liquids-centric for years, we’re now seeing a tremendous amount of activity with the rigs coming to us,” the company’s chairman and chief executive, Tom O’Connor, told us last year.

A similar approach is taken by Enterprise Products Partners, the largest publicly traded energy partnership and the largest pure midstream company in our 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 by 4% to 5,500 MMcf/d in 2010 from 5,300 MMcf/d in 2009.

“It’s opportunities [from advantageous pricing] that continue to provide us with linkage and expansion projects across our business lines. 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,” James Teague, chief operating officer and executive vice president, said during the company’s Q1 2011 earnings call.

Should Southern Union’s board of directors accept either of the proposed acquisition offers on the table from Williams and Energy Transfer Equity, it would see the prospective new owners jump into our 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 4,194 MMcf/d from 3,912 MMcf/d 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/d processing plant that is designed to handle volumes out of the Avalon shale, Bong Spring and Wolfcamp plays in Texas and New Mexico.

In an effort to avoid double counting production in our rankings, Midstream Monitor 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, Midstream Monitor 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, we organized a vetting group composed of industry experts and analysts to review our 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.