PVR Partners L.P. (PVR) continues to increase the throughput capacity of its Eastern Midstream segment, primarily backed by its increasing presence in the Marcellus Shale and higher-than-expected well connections in 2013.
The partnership’s Eastern Midstream segment is engaged in natural gas gathering and other related services, catering to the upstream players in Pennsylvania and West Virginia.
As per PVR Partners, the average total throughput volumes at its Eastern Midstream segment surged 60% year over year to more than 1.8 billion cubic feet per day ("Bcfd") in Dec 2013. This was primarily driven by the completion of 10 more well connections in 2013 from the previous projection of 91.
PVR Partners also announced that it has inked a deal with a natural gas producer. Per the contract, the partnership will set up a new interconnection in its facilities for the transportation of natural gas for this producer in the Marcellus Shale. The producer has committed 50 million cubic feet per day (“MMcfd”) of firm natural gas transportation on the partnership’s Wyoming trunkline. The facility is expected to be online in the fourth quarter of 2014.
Marcellus Shale, located across New York, Pennsylvania, West Virginia, Ohio and Maryland, is rich in natural gas. As per the United States Geological Survey (“USGS”) estimates, the formation covers a total area of approximately 95,000 square miles, with a depth of 4,000 feet to 8,000 feet.
As per the U.S. Energy Information Administration report, published in Jan 2014, natural gas production is expected to increase by 40% to 14 Bcfd in 2014 from the year-ago production of approximately 10 Bcfd, primarily due to a sharp rise in new well gas production per rig.
PVR Partners started its operations in the Marcellus Shale in 2010 and continues to expand its coverage in the region. In 2012, the partnership acquired the membership interests of Chief Gathering LLC for about $1.0 billion. This acquisition enabled PVR Partners to add six more natural gas gathering systems of Chief Gathering LLC mainly focused on the Marcellus Shale and Granite Wash regions.
We note that the exploration and development companies are drilling actively in the Marcellus Shale to tap its vast resources. We remind investors that Cabot Oil and Gas Corp. (COG), an independent oil and gas exploration company, recently announced its success in the Marcellus shale. The 10-well pad that the company successfully completed will result in a 30-day average production of 168 MMcfd with a peak production capacity of 201 MMcfd.
So, the demand for midstream operators will gradually increase in this region. To cater to the increasing demand from upstream companies for transportation services, another pipeline operator, Sunoco Logistics Partners LP (SXL), recently declared the beginning of Mariner East 2 pipeline project’s binding open season. The open season is for shippers willing to carry natural gas liquids from Marcellus and Utica Shale based processing facilities to the Marcus Hook Industrial area of Sunoco Logistics.
We believe construction of the new facilities besides signing new service-agreement will ensure steady cash inflow for the pipeline operators. This will subsequently enable the companies to install new infrastructure in the region, thereby serving more upstream players.
PVR Partners currently has a Zacks Rank #3 (Hold). However, a better-ranked stock in the same sector is QEP Midstream Partners, LP (QEPM) with a Zacks Rank #2 (Buy).
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