2024 Domestic Oil & Gas Industry Outlook

2024 NGL Forecast

Natural Gas Liquids Key Takeaways:

• The Fight is on for NGL Barrels: Midstream is using free cash flow to build pipelines that will transport NGL production growth out of the Permian for the next 5-10 years. Capacity looks ample, driving heavy competition for molecules and leading to downward pressure on T&F rates.
• A Molecule Lost Means $0.50 on the Dollar Gone: Spending capital ahead of demand is necessary to grab as much market share as possible from producers, thus limiting the risk of losing out on the downstream dollar.
• Downstream Opportunity from Midstream Prematurity: Enticing producers to commit as shippers on expanded NGL pipelines de-risks capital spend for fractionation and LPG export terminals.
• Logistical Path Ripe for M&A: ET, EPD and TRGP have benefited from integrated value-chain economics in NGLs. A ‘Fourth Alliance’ could be formed if a competitor steps up to link assets from the wellhead to export docks. Otherwise, it could be irrelevance or domination for other companies in the NGL space.

Rob Wilson, Vice President of Analytics: rwilson@eastdaley.com

2024 Midstream Oil and Gas Outlook

Midstream Company Financials Key Takeaways:

The midstream sector has been slowly consolidating, and we expect to see many more deals in 2024. Energy Transfer (ET) kicked off the trend in 2021 with its acquisition of Enable Midstream. Enterprise Products (EPD) and Targa Resources (TRGP) followed in 2022, targeting large privates Navitas and Lucid. ONEOK and Magellan joined forces in 2023, followed by a tie-up between Energy Transfer (ET) and Crestwood (CEQP). In Dirty Little Secrets, East Daley explores why 2024 may be an even bigger year for mergers and acquisitions (M&A) and in some cases, the strategic value behind consolidation.

• Midstream is ripe for consolidation. The industry is generating positive free cash flow (FCF) after dividends, and companies have dramatically reduced leverage ratios. Combine healthier balance sheets with fewer organic growth opportunities and lower valuations, and M&A looks especially attractive for capital allocation.
• M&A strategies with three targets: scale, growth and long-term value. Companies need M&A if they want to compete effectively in a lower-growth environment. Recent deals reflect this reality, and we expect the trend to continue.
• Expect more public company consolidation. We expect M&A between public companies to dominate the headlines as G&P-focused SMID-caps become limited by short-term growth dynamics, while large-caps look to backfill vertically integrated strategies.

Ajay Bakshani, Director of Midstream Company Financials: abakshani@eastdaley.com