With the U.S. presidential election less than two weeks away, a potential Joe Biden victory and his promise of restricting access to federal lands are top of mind for investors. While many oil and gas producers could lose inventory and long-term production potential, midstream companies who hold immobile, hard assets on federal lands and deliver that production downstream face a similar downside risk to throughput.
Figure 1 shows total crude and gas gathering system exposure as a percentage of total pipeline miles across federal acreage. While specific names have been removed, Lucid Energy and MPLX sit at the top of the list of midstreamers gas gathering assets exposed to federal acreage in the prolific Delaware Basin in New Mexico. Enterprise Products Partners (EPD), Summit Midstream (SMLP) and Enlink (ENLC) also hold gathering asset risk
For some midstreamers, low post-COVID-19 oil prices have already reduced activity on their systems. For others, drilling programs by E&P companies have been resilient. The second group of midstreamers, which includes Lucid, EPD, MPLX, SMLP, ENLC and Enable (ENBL), could experience sharply reduced volumes if drilling stops because of steep first-year declines for shale wells. Companies with active drilling programs through 2020 face more downside risk than those producers that drastically cut activity in the wake of the pandemic.
Figure 2 shows current active rigs connected to oil and gas gathering systems in the Delaware play in New Mexico. The active rigs are not specifically drilling on federal acreage, but given the density of federal land in Lea and Eddy counties, we assume active rig count may decline significantly if a ban on well fracture stimulation is imposed. Energy Transfer’s (ET’s) gas gathering system in New Mexico currently has the largest number of active rigs working, followed by Lucid Energy. Oil gathering systems including Exxon (XOM), Plains All American Pipeline (PAA) and MPLX have between six and eight active rigs working to drill wells. For comparison, Oryx, a system with greater acreage diversification across the Permian Basin, currently has four active rigs tied to it.
FIGURE 1 | Crude and Gas Gathering System Exposure to Federal Lands by Midstreamer
FIGURE 2 | Current Active Rigs on Oil and Gas Gathering Systems in New Mexico Delaware
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