The US Oil Boom & the Energy Supply Chain: MLPs are thriving

Over the past few years there has been a paradigm shift in U.S. energy production. New technological solutions have allowed the U.S. to tap into previously untouchable shale deposits. The Shale Boom that began in North Texas’ natural gas-rich Barnett Shale in the 90’s has spread across the country––from the Bakken Shale to the north to the Eagle Ford Shale in the south. In 2011, recoverable resources were estimated at 32 billion barrels, and this estimate recently skyrocketed by 50% to 48 billion.

The race is now on to develop these resources. According to Barclays, upstream producers are expected to spend $184 billion in 2013 alone. A staggering $4.3 trillion is expected to be put to work to increase domestic energy production through 2035.

This dramatic increase in oil production today (and well into the future) has opened the doors to multiple opportunities throughout the energy supply chain.

The Domestic Energy Supply Chain

Upstream
Oil & natural gas production

Drilling, production, offshore
Midstream
Transportation & Logistics

Pipelines, terminals, marine transportation, midstream services
Downstream
Refining & Distribution

Oil refineries, natural gas distribution, retail outlets

The midstream sector has particularly benefited from the energy boom. Midstream energy companies provide the vital infrastructure that bridges the gap between the oil field and end consumers. As production activity rises, additional transportation and support services are needed to meet demand and deliver the energy that drives the nation.

Midstream Master Limited Partners are thriving in this environment.

With a “toll road” business model, Midstream MLPs collect revenue based on transportation and transaction costs, which provide a solid and fairly predictable income stream. Midstream services like trucking fees, pipeline fees, and saltwater disposal are usually set fees and are not overly impacted by the rise and fall of commodities pricing. Over the years, this business model has delivered steady income generation with compelling historical yields and distribution growth potential.*

Midstream MLPs currently have an estimated $100 billion+ set aside for capital investment in pipeline and related projects in just 2013 through 2015 alone. Source: ITG and Tortoise Capital Advisors

*Past performance does not guaranteed future results. Based on the historical performance of the ~90 partnerships in the MLP asset class.

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