uploads///US crude oil production

How US Oil Production Impacts MLPs


Dec. 4 2020, Updated 10:52 a.m. ET

US oil production

Oil production in the US has increased drastically due to new technologies and the application of hydraulic fracturing and horizontal drilling.

The above graph shows that US crude oil production will rise significantly from its current levels, which will in turn spark an increase in infrastructure activities.

Recently, the Interstate Natural Gas Association of America published a survey in which it upgraded the Bakken Shale to 3,650 million barrels of recoverable resources from 151 million barrels, which highlights the drilling advancements in the current scenario.

US crude oil production has been growing since 2009 after declining for two decades, and it is currently growing at a CAGR (compound annual growth rate) of 8% to 9%. Commercial production of crude oil from unconventional resources has become possible because of the latest technological development.

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Significant crude oil plays in the US include the Williston Basin in Montana and South Dakota, the Utica Shale in the Appalachian Basin, the Uinta Shale in Northeast Utah, the Permian Basin in Texas, the Eagle Ford Shale in South Texas, the Niobrara in northeastern Colorado, and the Bakken Shale in northeast Montana and North Dakota.

The above graph shows that significant pipeline capacity will be added in the coming years to support the growing oil production, which will affect midstream MLPs as a whole.

Some of the MLPs that have fair exposure to oil transportation are Energy Transfer Partners (ETP), Plains All American Pipeline (PAA), Williams Partners (WPZ), and Magellan Midstream Partners (MMP). These MLPs have a combined weight of 28.53% in the Alerian MLP ETF (AMLP).


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