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Big Growth Creates Permian G&P System Winners

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The Daley Note: July 3, 2023

With 2Q23 earnings around the corner, East Daley Analytics recently updated our G&P system forecasts in the Permian Basin. While there is plenty of growth to go around, our rig allocations point to wide variance in system performance. 

Permian natural gas production is rising fast, backed by steady rig activity and multiple midstream infrastructure expansions. The Permian Basin outlook in Energy Data Studio projects raw natural gas production to grow by 3.2 Bcf/d on average in 2023, reaching over 24 Bcf/d this year.

This growth will not be evenly distributed among midstream operators. At a high level, we estimate supply in 2023 is increasing nearly twice as fast in the Delaware (19% Y-o-Y growth) as the Midland sub-basin (10% Y-o-Y growth). And within the Delaware and Midland, location and competition create a wide range of winners and losers in the midstream space. 

A sample from our coverage of 40+ Permian G&P systems is shown in the figure. Among the outperformers, we model EnLink Midstream’s (ENLC) Delaware system to post 30% Y-o-Y volume growth in 2023. At the low end is the Alpine High system owned by Kinetik (KNTK), where we expect gas volumes to decline by 8% on average in 2023.

TDN 7.5.23

ENLC – Delaware is backed by leading operators ExxonMobil (XOM) and EOG Resources (EOG). The two producers have added 3 rigs combined this year, according to G&P system rig allocations in Energy Data Studio. We allocate 8 rigs to ENLC – Delaware in June, up from 2 rigs at the start of the year. In the ENLC Financial Blueprint, EDA estimates the Delaware system will generate ~$49MM more EBITDA in 2023 as a result of volume growth.

For KNTK - Alpine High, flows are in natural decline due to a lack of rig activity on the Delaware system. Alpine High is highly dependent on producer Apache (APA) for investment, and we haven’t tracked a rig on the system High since October 2022. Fortunately for KNTK, its nearby Raptor system is seeing strong growth (+18% Y-o-Y) from a diverse group of public and private producers, including Callon Petroleum (CPE) and Permian Resources (PR), showing location is paramount.

The highs and lows in the figure illustrate the wider range in our Permian sample. KNTK – Raptor and ENLC – Delaware are part of a larger group of 20+ G&P systems in Energy Data Studio that EDA forecasts 10%+ volume growth. And, like KNTK – Alpine High, we model many assets will post declining volumes as overall gas supply grows in 2023.  

Permian rig counts recently peaked at 361 at the end of April and have fallen to 343 rigs in late June. With the growth trend in the basin at risk of stalling, we will continue to monitor systems for changes in performance. – Zach Krause Tickers: CPE, ENLC, EOG, KNTK, PR, XOM.


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