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Expected Increases in Oil, Gas Production: A Positive for MLPs

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Nov. 20 2020, Updated 12:23 p.m. ET

US drilling activity in February 2017

US drilling activity stayed strong in major shale plays in February 2017, driven by the slight recovery in commodity prices and the decline in drilling costs with the usage of efficient drilling methods. According to recent Baker Hughes (BKI) rig data, the US rig count rose for the seventh straight week. This is expected to drive throughput volumes of midstream MLPs such as Williams Partners (WPZ), EnLink Midstream Partners (ENLK), and DCP Midstream (DCP).

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US crude oil production

The above chart shows the strong production growth seen over the past six weeks. According to the EIA’s (U.S. Energy Information Administration) recent short-term energy outlook report, crude oil production is expected to grow 3.7% between 2016 and 2017. The Permian Basin may continue to experience strong production growth.

According to Goldman Sachs, the Permian is expected to see a crude oil production CAGR (compound annual growth rate) of 4.3% in the next three years. The Bakken Shale follows, with an expected crude oil production CAGR of 2.8%. Midstream MLPs Energy Transfer Partners (ETP) and Sunoco Logistics Partners (SXL) have exposure to both regions.

US natural gas production

At the same time, the EIA expects US natural gas production to grow 2.1% between 2016 and 2017. Goldman Sachs expects the Marcellus Shale and Utica Shale to see natural gas production CAGRs of 3.4% and 0.9%, respectively, over the next three years. This is expected to benefit Appalachian-based midstream MLPs such as Antero Midstream Partners (AM) and Western Gas Partners (WES).

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