LINN Energy LLC (LINE), Energy Transfer Partners LP (ETP), Chesapeake Energy Corporation (CHK): Midstream Companies See Opportunity in This Shale Play

As new shale plays have been discovered and developed over the past few years, they’ve helped exploration and production companies boost production tremendously. They’ve also created massive opportunities for midstream companies to provide the infrastructure necessary to support these beehives of activity.

Consider the Permian Basin in Texas, for instance. The play has been producing oil for decades, but the recent application of new technologies has drastically improved recovery rates. For instance, companies like Apache Corporation (NYSE:APA) have seen tremendous success in the Permian by drilling longer laterals and employing a greater number of fracking stages.

The Best Stock to Profit from Cheap Natural GasOthers have used secondary and tertiary recovery methods to coax more oil and gas out of the ground. For example, LINN Energy LLC (NASDAQ:LINE) has utilized waterflooding, a technique that involves injecting hot water into a reservoir to drive oil and gas into nearby producing wells, in some parts of its Permian acreage.

As production from the basin has soared, pipeline companies have eagerly moved in to capitalize on the region’s growth. For instance, Sunoco Logistics Partners L.P. (NYSE:SXL), which was acquired for more than $5 billion last year by Energy Transfer Partners LP (NYSE:ETP), is currently under way with two projects to boost capacity on its existing West Texas pipeline system that serves the Permian Basin.

Similar opportunities await in other plays across the country. One major play worth watching is the Utica, a vast shale rock formation that spans parts of Ohio, New York, Pennsylvania, Virginia, and West Virginia. With several producers looking to ramp up drilling in the play this year, opportunities abound for midstream companies.

Infrastructure hurdles
With the exception of Chesapeake Energy Corporation (NYSE:CHK), which drilled fairly actively in 2012 and currently has 14 rigs operating in the play, production growth for most Utica operators remained flat to moderate last year as many of them held off on bringing new wells online. The main reason why they’ve been reluctant to do so is because of infrastructure constraints.

Harry Schurr, general manager of CONSOL Energy Inc. (NYSE:CNX)’s CNX Gas operations in the Utica, explained: “I need pipelines… If I put a well in the ground, but I can’t transport (the natural gas), it’s not much good.” According to Schurr, pipelines are even more important than roadways and rail access for getting the Utica’s oil and gas production to market.

Well, it looks like a handful of midstream companies have heeded the call. As they form joint ventures to provide gas gathering and processing facilities, it looks like relief may soon be on the way for Utica producers.

New infrastructure projects in the Utica
For instance, NiSource Inc. (NYSE:NI), an Indiana-based company involved in natural gas transmission, storage and distribution, announced in July that it has entered into an agreement with affiliates of Hilcorp Energy, a privately held energy exploration and production company based in Houston, to build new gathering and processing infrastructure to support gas production in the Ohio and Pennsylvania portions of the Utica Shale.

The joint venture – Pennant Midstream, LLC – will build an initial 50 miles of gas liquids gathering facilities in northeast Ohio and western Pennsylvania with an expected capacity of 400 million cubic feet per day. The joint venture will also construct a gas processing facility that’s expected to have an initial gas processing capacity of around 200 thousand cubic feet per day. Both facilities are expected to be in service by the third quarter of this year.