Dark stars may have temporarily aligned for the oil and gas industry, but the U.S. has whupped some merciless bulls at this rodeo before and there’s no question we’ll come out high-riding again just like we always do. In the latest report from Alerian looking at 2020, midstream operators, in particular, own a cushion that’s prepared them for the perfect storm like what we’re seeing right now and what might lie ahead. While there’s no guarantee that Russia, OPEC and the Coronavirus are going to play nice soon under a flimsy umbrella of volatile oil and gas prices, the midstream industry continues to hold up better than most any other sector in the industry. Let’s look at that.
No surprise here, producers are reducing their drilling activity. But midstreamers typically include minimum volume commitments or take-or-pay features that tend to insulate them during down times. The midstream industry also has been more cognizant of using free cash flow to fund new builds and expansions while increasing NGLs fees and lessening dependence on private equity. As an example, Denver-based DCP Midstream has raised its fee-based gathering and processing services from 40% to 70% this year. Others have initiated growth incentive fee programs. Not to be overlooked, midstream companies also are reaping the benefits of new project completions over the last few years, which have increased their positive cash flow.
Here’s the bottom line as we continue to hear the sky is falling. There’s no such thing right now—or in the foreseeable future—as a world without oil and gas. And the U.S. is the largest exporter of both. Every brunt come to bear in this current, hypertensive climate is nothing more than a wait-it-out moment served up with another opportunity to saddle up in that bull pen and ride, Sally, ride.
What do you think?