2019 Goldman Permian Basin (In)Balances – Supply Versus Pipeline Takeaway.pdf

We update our supply/demand models for each basin and hydrocarbon,
refreshing for both production and the latest project announcements. First, we
change how we present our analysis — now on a quarterly basis — as we believe it
more accurately highlights when bottlenecks will occur. Notably, we now expect the
Permian to have sufficient takeaway by 3Q2019 as EPD’s earlier-than-expected
Seminole crude oil conversion (originally guided to 2020), in conjunction with the
EPIC NGL pipeline announcement, should add sufficient capacity to meet West
Texas crude oil supply. Turning to West Texas associated gas, as KMI’s Gulf Coast
Express and Permian Highway Pipeline commence operations, the basin should
have sufficient gas takeaway until 2022E — though we note Eastern Corridor
takeaway remains tight. In the Bakken, we continue to expect constrained takeaway,
giving PSX’s Liberty Pipeline a high probability of FID, in our view. In the Northeast,
long-term takeaway constraints should subside assuming projects such as the
Mountain Valley Pipeline and Atlantic Coast Pipeline enter service. Lastly, we expect
ENB’s Line 3 Replacement and TRP’s Keystone XL will debottleneck the WCSB,
given our current Canadian production forecast, although we expect delays for both
projects (estimated in-service of 3Q20E and 1Q22E, respectively).
Tight Permian takeaway in 1H2019 should continue to favor KMI (Buy, On
America’s CL), PAA (Buy) and ET (Buy), while opportunities in the Bakken
should benefit ET, KMI,TGE (Buy), and PSX/PSXP (Buy). A number of our favorite
ideas are well-positioned to benefit from both tight and long takeaway situations in
the near- and long-term. Tight near-term crude oil takeaway in West Texas will
continue to favor the marketing businesses for PAA and ET. However, once EPD’s
Seminole crude oil conversion and EPIC’s temporary NGL pipeline conversion
resolve the takeaway constraints, we expect those S&L profits to subside. In North
Dakota, the lack of pipeline capacity we anticipate should present long-term
opportunities for ET, KMI, TGE, and PSX/PSXP to pursue incremental takeaway
opportunities. New potential project announcements - like PSX’s Liberty Pipeline,
ET’s small (50 kbpd) expansion of DAPL and the KMI/TGE joint venture - all could
impact basin supply/demand - and contribute incremental EBITDA for the project
owners - if they move ahead. We see even more pronounced tightness in Western
Michael Lapides
+1(212)357-6307 |
michael.lapides@gs.com
Goldman Sachs & Co. LLC
Jerren Holder, CFA
+1(917)343-5021 | jerren.holder@gs.com
Zach Cantor
+1(212)357-5379 | zach.cantor@gs.com
Kia Pourkiani
+1(212)357-7247 | kia.pourkiani@gs.com
Mohit Bagri, CFA
+1(212)934-9013 | mohit.bagri@gs.com
Goldman Sachs India SPL
Americas Pipelines and MLPs
Basin (In)Balances – Supply Versus Pipeline Takeaway
10 February 2019 | 6:20PM EST
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
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analysts with FINRA in the U.S.
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JEFF@NAMERICO-ENERGY.COM

Canada, which should likewise benefit TRP
, but note that regulatory headwinds make
projects like KXL likely to face continued delays and cost inflation.
In 2019, we believe investors should monitor new project announcements in the
Bakken and to the Gulf Coast — as well as potential project consolidations. With
numerous Permian crude oil pipelines getting announced and going FID recently — risks
exist of an overbuild in the coming years, unless production ramps materially above
expectations. We believe project consolidation could potentially occur in order to avoid a
potential overbuild and further distribute construction costs. New Bakken related
projects — like the potential KMI/TGE joint venture — also remain worth monitoring as
well as projects that could move crude to the Gulf Coast, such as TGE’s Seahorse
proposal, the Capline reversal, Red Oak by PSX/Bridger, SEMG/DCP’s proposed
Gladiator project and the MMP/Navigator joint venture. We see Capline as maintaining
the highest likelihood of receiving positive FID and will also monitor the progress of the
1-2 of the other projects, as well as expansions of either DAPL or TRP’s MarketLink, to
move crude oil to the Gulf Coast and for potential export.
PM Summary
Given the string of recent pipeline announcements, we updated our basin
supply/takeaway models for crude oil, natural gas, and NGLs. Key takeaways are as
follows:
Permian crude oil. In the Permian, we expect EPD’s earlier-than-expected
n
Seminole crude oil conversion, in conjunction with the EPIC NGL pipeline
announcement, will alleviate the basin’s crude oil bottleneck by 3Q2019 (earlier than
previously expected), while the recently announced PAA/XOM/Lotus JV should
result in overbuilt takeaway in West Texas in the long-term. Prior to the start-up of
EPIC’s NGL pipeline, which will transport crude oil from the Permian to the Gulf
Coast in 3Q2019 and 4Q2019 before switching to NGL service in 2020, we see EPD,
ET, and PAA as the best positioned to benefit from wide basis differentials in
1H2019.
Permian natural gas. Turning to natural gas, as KMI’s Gulf Coast Express and
n
Permian Highway Pipeline commence operations, we believe the basin will have
sufficient gas takeaway until 2022E, however, we note Eastern Corridor takeaway
could remain modestly tight.
Bakken crude oil. In the Bakken, we continue to expect constrained takeaway,
n
giving PSX’s Liberty Pipeline a high probability of FID, in our view.
Appalachian natural gas. In the Northeast, long-term takeaway constraints should
n
subside as projects such as the Mountain Valley and Atlantic Coast Pipeline (ACP)
eventually enter service, despite recent regulatory delays. Post-2023, gas takeaway
could become constrained given rising production, potentially creating incremental
growth opportunities for TRP
, KMI, and WMB.
Western Canadian crude oil. Lastly, we expect ENB’s Line 3 Replacement and
n
TRP’s Keystone XL to debottleneck the WCSB, in our view, although we continue to
10 February 2019 2
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expect delays (relative to guidance, given regulatory headwinds for both projects) for
both projects (estimated in-service of 3Q20E and 1Q22E, respectively).
Crude Oil — Permian to balance in 3Q19, Bakken/WCSB remain tight
The Permian Basin
We update our supply/demand models for each basin and hydrocarbon, refreshing
for both production and the latest project announcements. We now present our
analysis on a quarterly basis, as we believe it more accurately highlights when takeaway
bottlenecks will occur. Notably, we now expect the Permian to have sufficient takeaway
by 3Q2019 as EPD’s earlier-than-expected Seminole crude oil conversion, in conjunction
with the EPIC NGL pipeline announcement, should add sufficient capacity to meet West
Texas crude oil supply.
With the recent PAA/XOM/Lotus announcement and the Gray Oak upsizing, we
now expect the Permian faces a multi-year surplus of capacity.
We highlight three significant developments in our supply/demand model:
On January 30th
, PAA, XOM and Lotus Midstream (which recently completed its
n
acquisition of the Centurion Pipeline from OXY) announced the Wink to Webster
Pipeline JV, a 36-inch pipeline with capacity of >1 mmbpd. The common-carrier
pipeline will originate at Wink and Midland — and will terminate near Houston
(including Webster and Baytown) with connectivity to Texas City and Beaumont. The
project is expected by management to commence operations in 1H2021.
Additionally, EPD announced at earnings that the company will start the process of
n
converting its Seminole NGL pipeline to crude oil service — a 200 kbpd pipeline
entering partial service in February and full service in 2Q2019.
As a reminder, EPIC announced it will temporarily move crude oil on its 400 kbpd
n
NGL pipeline beginning in 3Q2019 until January 2020, while PSXP announced it
was increasing the capacity of Gray Oak to 900 kbpd.
We believe EPD, ET, and PAA remain best positioned to benefit from any
differentials and also the economics of crude pipelines to the Gulf Coast. With the
Wink to Webster pipeline receiving positive FID, we see the basin overbuilt by ~1,145
Exhibit 1: We highlight, across the basins, which companies maintain the most exposure to specific oil, gas & NGL plays
Asset exposure per basin and commodity
Bakken Eagle Ford Marcellus/Utica Permian Midcontinent Niobrara/Rockies Western Canada
Crude Oil HESM, OMP, PSXP,
CEQP, SMLP, ET
PAA/PAGP, EPD, KMI,
MMP
HEP, MMP,
PAA/PAGP, PSXP,
MPLX, EPD, ET
MMP, PAA/PAGP,
SEMG, TGE TRP
Natural Gas HESM, OMP, CEQP,
SMLP, WMB DCP, KMI
AM/AMGP, EQM,
CEQP, MPLX, SMLP,
WMB, TRP
WES/WGP, DCP,
MPLX, TRGP, OKE,
KMI, EPD, ET TRGP, OKE, KMI
WES/WGP, DCP,
SMLP, WMB, TGE TRP, SEMG
Natural Gas Liquids
HESM, OMP, OKE DCP, EPD MPLX, ET
WES/WGP, PSXP, DCP,
MPLX, TRGP, OKE,
EPD, ET TRGP, OKE
WES/WGP, DCP,
SEMG, EPD SEMG
Source: Goldman Sachs Global Investment Research
10 February 2019 3
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kbpd by 2022E. Conversely, we continue to expect near-term takeaway constraints in
1H19 prior to the start-up of the EPIC’s NGL pipeline and EPD Seminole pipeline, which
should benefit companies with crude oil marketing exposure. Further, while we expect
the Permian to reach sufficient takeaway by 2H19, we note that several large-scale
projects (e.g., the ET/MMP/MPLX/DK JV and Jupiter MLP) could receive positive FID,
which would add over 2 mmbpd of incremental takeaway capacity. We currently
exclude these projects from our analysis.
The Bakken
We also see a need for more takeaway capacity in the Bakken — a potential
positive for PSX’s proposed Liberty Pipeline project, one not yet in estimates. The
Bakken, in our view, remains the basin that should garner more investor attention, given
emerging pipeline constraints. We expect the Bakken remains underbuilt assuming
roughly +1,650 mmbpd of oil production in 2020+, needing rail to move oil — implying
the need for 1 large or 2 small/mid size projects. DAPL — co-owned by ET, PSXP
, and
MPLX — will increase its capacity by ~50 kbpd per management commentary, but we
see more takeaway required out of North Dakota. On November 9th
, PSX and Bridger
Pipeline announced a joint open season for the proposed Liberty Pipeline, which will
transport Powder River Basin (PRB) and Bakken barrels to Corpus Christi. If the
companies receive sufficient shipper commitments and build Liberty, a 350 kbpd line,
this could make the Bakken potentially long capacity. For now, we expect tight takeaway
in the Bakken to benefit crude pipeline operators in the basin (ET, KMI, PAA, and TGE).
Exhibit 2: We expect the Permian to be overbuilt as a result of the recent announcement of Wink to Webster Pipeline
Permian Crude Oil Supply Versus Takeaway
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
kbpd
Wink to Webster Pipeline
(XOM/PAA/Lotus)
Permian Gulf Coast (PGC)
EPIC
Gray Oak
EPD Seminole (NGL to Crude Conversion)
Cactus II
EPIC NGL Pipeline (Crude Service)
Permian Express III
Midland-to-Echo (Midland-to-Sealy)
Permian LV/LA ext.
Permian Express II
Cactus
BridgeTex
Permian Express
Longhorn
Centurion
WTG
Source: Company data, Goldman Sachs Global Investment Research
10 February 2019 4
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On January 22nd,TGE and KMI announced a JV to increase crude oil takeaway
capacity out of the DJ, PRB, Bakken, and WCSB. TGE would contribute its Pony
Express Pipeline crude oil pipeline, while KMI would contribute portions of its Wyoming
Intrastate Company and Cheyenne Plains Gas Pipeline (which will be converted to crude
oil service). Per the announcement, the JV will construct 200 miles (321.87 km) of
greenﬁeld pipe to connect the system to Cushing. In total, the combined system will
maintain a capacity of 800 bpd of light crude and 150 kbpd of heavy crude, and would
commence operations as early as 2H2020 — we do not yet include this new capacity in
estimates and believe FID announcements would not occur till later in 2019, if at all.
Western Canada
We also expect permitting headwinds keep the WCSB tight for the foreseeable
future, unless KXL comes online. Three projects shape the supply versus takeaway
debate in Western Canada — ENB’s Line 3 Replacement (L3R), TRP’s Keystone XL (KXL)
and the Government of Canada owned Trans Mountain Expansion Project (TMEP). All
three face separate challenges — environmental permitting, appeals and challenges of
previous approvals, etc. We assume both L3R and KXL both get built given regulatory
milestones reached thus far — albeit on a slightly later timeline relative to what we ﬁnd
many investors expect. We conservatively model L3R and KXL to start-up in 3Q20E and
1Q22E, respectively, versus management commentary of 2H19 and 1Q21E, given the
potential for regulatory delays. To note, on November 8th
, KXL was blocked by a
Exhibit 3: The Bakken should garner more investor attention, given emerging pipeline constraints
Bakken Crude Oil Supply Versus Takeaway
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
kbpd
Dakota Access
Double H
Bakken Exp.
ND System (PAA)
Butte Loop
Butte Pipeline
Mainline ND
Refinery Demand
Bakken Production
10 February 2019 5
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Montana federal judge pending further environmental review under the belief that the
2014 environmental impact assessment fell short of the National Environmental Policy
Act and other regulatory standards. If TMEP is also constructed, we estimate that the
WCSB would have 644 of excess capacity by 2023E.
Exhibit 4: ENB’s Line 3 Replacement and TRP’s Keystone XL should debottleneck the WCSB
Western Canada Crude Oil Supply Versus Takeaway
0
1,000
2,000
3,000
4,000
5,000
6,000
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
kbpd
Keystone XL
Line 3 Replacement (Expansion)
Keystone
Rangeland
Express
Trans Mountain
Line 67 (Alberta Clipper)
Line 65 (Spearhead)
Line 4
Line 3
Line 2 (A/B)
Line 1
Refinery Demand
Canada Production
10 February 2019 6
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Exhibit 5: The White Cliffs conversion helps, but the Niobrara is still overbuilt
Niobrara Crude Oil Supply Versus Takeaway
0
1,000
2,000
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
White Cliffs
Pony Express
Saddlehorn/ Grand Mesa
Platte
Total Refinery Demand
Total Niobrara Crude Oil Supply
10 February 2019 7
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Exhibit 6: We expect an increase in production, but ample takeaway exists
Anadarko (SCOOP/STACK) Crude Oil Supply Versus Takeaway
0
250
500
750
1,000
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
Healdton-to-Cushing
Oklahoma Mainline
Jayhawk Pipeline System
Glass Mountain
STACK JV
Red River
Refinery Demand
Cana Woodford Production
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Natural Gas — We see a need for more Gulf Coast takeaway our of the
Permian
The Permian Basin
Permian natural gas takeaway also appears sufficient for now, becoming
under-supplied in 2022 or so. We expect significant gas takeaway capacity will likely
come online in the Permian in the next few years — with projects like KMI’s Gulf Coast
Express (GCX) and Permian Highway Pipeline (PHP) alleviating much of the basin’s
associated gas bottleneck in the next 2+ years, assuming production that ramps to an
average of 11.1 Bcf/d in 2020 and 13.0 Bcf/d in 2021. Takeaway corridors remain an
important consideration with limited takeaway East (towards the Gulf Coast) driving
Katy-to-Waha differentials wider ($0.97 at end of 4Q2018). With Waha trading at
$0.20-0.30/Mcf through the first week of February, the market, in our view, is effectively
telling Midstream that the Eastern Corridor is the preferred takeaway option for West
Texas associated gas given a lag in Mexico demand, among other factors.
We highlight several potential projects awaiting FID — like Whistler or
Bluebonnet— could add another 4 Bcf/d of takeaway capacity by 2021, outpacing
the expected ramp in WestTexas associated gas production. Assuming a more
Exhibit 7: Eagle Ford remains one of the few oil basins with sufficient pipeline supply
Eagle Ford Crude Oil Supply Versus Takeaway
0
1,000
2,000
3,000
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
kbpd
Victoria Express
Rio Bravo
Eaglebine
Double Eagle
PAA/EPD Eagle Ford JV
Harvest-Pearsall
3 Rivers/Corpus Christi
Harvest-Gardendale
Koch Pipeline
KMCC
Eagle Ford Crude Pipeline
Refinery Demand
Total Eagle Ford Crude Oil Supply
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robust utilization of export pipelines sending natural gas south into Mexico, we see
takeaway capacity as sufficient through 2021, even if PHP and Whistler do not move
forward by then. Until these projects enter service, however, we believe ET and EPD
are best positioned to capture the wide differentials.
The Marcellus / Utica Shale
We also see takeaway constraints in the Northeast getting resolved as new
projects enter service. In our view, Mid-Atlantic gas demand (partially driven by new
LNG and coal retirements) will help absorb the natural gas production ramp we expect
in the Marcellus/Utica. Assuming Appalachian production of 30.1-37
.0 Bcf/d (per our E&P
team estimates) in the 2019-2022 time frame, takeaway capacity being developed (most
notably the Mountain Valley and Atlantic Coast Pipelines) should provide ample capacity
to move gas out of the basin — especially with Atlantic Sunrise entering service in
4Q2018. However, we note that these projects face continued litigation from
environmental groups, despite already being in the construction process. On February
1st
, Dominion Energy announced another delay to ACP (partial in-service in late-2020, full
in-service in early-2021) - while we assume full in-service in mid-2021 given the inherent
difficulties in building pipelines in the Northeast. We believe the Northeast would
remain in need of incremental takeaway if MVP faces delays similar to ACP — a push
out to 2021 would make the Northeast undersupplied by 0.9 Bcf/d in 1Q21E, in our
view. Post-2023, we expect the Appalachian gas takeaway to become constrained,
benefiting TRP and WMB.
Exhibit 8: Permian gas takeaway remains sufficient until 2023
Permian Natural Gas Supply Versus Takeaway
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18E
3Q18E
4Q18E
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
Permian Highway Pipeline
GCX
Roadrunner 3
WesTex Transmission
Trans-Pecos
Comanche Trail
Roadrunner 1 & 2
Guadalupe
KM Texas
NGPL
Transwestern
ET Fuel
Atmos
NNG
Oasis
EPNG
Production (MMcf/d)
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Natural Gas Liquids - the Northeast needs more takeaway
Besides the Northeast, most North American basins appear likely to become
overbuilt with long haul NGL pipeline capacity, assuming projects come online as
scheduled. Once several key new pipeline projects come online — Grand Prix, Shin Oak,
and EPIC NGL pipelines in Texas or the Arbuckle II and Sterling III projects in the MidCon
basin and Elk Creek in the Bakken — many markets may appear to have sufﬁcient
takeaway. The notable exception we see is the Marcellus /Utica, which appears
underbuilt (465-343 kbpd in 2019E-2023E) even assuming ET’s Mariner East 2X is
completed by year-end 2019.
Exhibit 9: We expect WMB Leidy South, Atlantic Coast, and Mountain Valley to help slightly outpace production
Marcellus Utica Natural Gas Supply Versus Takeaway
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
MMcf/d
WMB Leidy South
Atlantic Coast
Mountain Valley
Northern Access
Nexus
Atlantic Sunrise
DTI Leidy South
ET Rover
Texas Gas
Transco
National Fuel Gas
REX
ANR
TETCO
TGP
Columbia
Net local demand
Production (MMcf/d)
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Exhibit 10: We expect Appalachia will remain under supplied with NGL takeaway capacity - this market needs new pipelines or exports
Appalachia NGLs Supply Versus Takeaway
0
200
400
600
800
1,000
1,200
1,400
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
Shell Ethylene Plant Demand
Mariner East 2X
Mariner East 2
Utopia East
Cornerstone
Mariner East 1
ATEX
TEPPCO
Marcellus/Utica NGL Production
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Exhibit 11: On the NGL side, the Permian will become and remain overbuilt when the major projects enter service
Permian NGLs Supply Versus Takeaway
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
Campanero
EPIC NGL
Grand Prix
Shin Oak
Lone Star Express
Sand Hills
Lone Star West Texas Gateway
Seminole
Rio Grande
EZ Pipeline
Chaparral / Quanah NGL System
West Texas LPG
Permian NGL Production
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Exhibit 12: ....while the Bakken remains oversupplied once Elk Creek comes online
Bakken NGLs Supply Versus Takeaway
0
50
100
150
200
250
300
350
400
450
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
Elk Creek
Pembina Vantage
Bakken NGL Pipeline
Bakken NGL Production
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Exhibit 13: Takeaway exceeds NGL supply from the Rockies
DJ Basin NGLs Supply Versus Takeaway
0
100
200
300
400
500
600
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
White Cliffs NGL Conversion
Front Range
Overland Pass
DCP Wattenberg
DJ Basin NGL Production
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Valuation & Key Risks:
KMI (Buy): Our $23, 12-month price target is based on an unchanged 10.5x EV/EBITDA
multiple, compared to our baseline multiple of 11.0x for our coverage group. Key
downside risks include recontracting risk, commodity prices, pipeline regulation, and
construction risk on growth projects. (Last close $17
.96)
PAA (Buy): Our 12-month $28 price target is based on an 11.5x EV/EBITDA multiple
applied to our 2020 EBITDA estimate. Downside risks include (1) a compression of
basis differentials as Permian takeaway pipelines enter service, which could pressure
margins at Plains’ S&L segment, (2) changes in Permian supply/demand dynamics which
could limit the need for incremental takeaway and thereby cap potential growth outside
of the company’s identified projects, and dilutive M&A which would dilute per unit/share
metrics. (Last close $22.91)
ET (Buy): We base our 12-month price target of $24 on a 10.5x EV/EBITDA multiple.
Key downside risks include near-term leverage and financing, cash flows from
subsidiaries, and a track record of M&A. (Last close $14.41)
TGE (Buy): We maintain our 12-month price target of $27 based on an unchanged 10.5x
EV/EBITDA multiple. Key downside risks for TGE include (1) the re-contracting of
existing oil and natural gas pipelines – given contract expirations on both REX and PXP
,
Exhibit 14: The Grand Prix extension and Arbuckle II should help balance takeaway with supply
Anadarko (SCOOP/STACK) NGLs Supply Versus Takeaway
0
200
400
600
800
1,000
1,200
1,400
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19E
2Q19E
3Q19E
4Q19E
1Q20E
2Q20E
3Q20E
4Q20E
1Q21E
2Q21E
3Q21E
4Q21E
1Q22E
2Q22E
3Q22E
4Q22E
1Q23E
2Q23E
3Q23E
4Q23E
Arbuckle II
Grand Prix Extension (Southern OK)
Sterling III
Southern Hills
Arbuckle
Sterling II
Sterling
Cana Woodford NGL Production
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(2) volumetric exposure, especially on the Pony Express pipeline as well as for TGE’s
gathering business, (3) project return levels on new growth projects like the Cheyenne
Connector, and (4) financing needs. (Last close $23.05)
PSXP (Buy): We derive our 12-months price target of $65 by applying an unchanged
13.0x EV/EBITDA multiple - a premium to our baseline multiple of 11x - on our 2020
EBITDA forecasts. Key downside risks include dilutive acquisitions, equity issued at less
favorable prices, high customer concentration and distribution growth below our
estimates. (Last close $48.62). PSX (Buy) is covered by Neil Mehta (Last close $91.74)
Definitions
MLP distributions consist largely of return of capital and not of current income. The
ultimate composition of these distributions may vary due to a variety of factors including
projected income and expenses, depreciation and depletion, and any tax elections made
by the MLP
. The final characterization of such distribution will be made when an MLP
can determine each investor’s share of the MLP’s income, expenses, gains and losses.
The final tax status of the distribution may differ substantially from this information.
10 February 2019 17
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Disclosure Appendix
Reg AC
We, Michael Lapides, Jerren Holder, CFA, Zach Cantor and Kia Pourkiani, hereby certify that all of the views expressed in this report accurately reflect
our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will
be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
GS Factor Profile
The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its
sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The
normalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each metric may
vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
higher percentile indicating a higher growth company. Financial Returns is based on a stock’s forward-looking ROE, ROCE and CROCI (for financial
stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock’s forward-looking P/E, P/B,
price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile
indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics).
For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.
M&A Rank
Across our global coverage, we examine stocks using an M&A framework, considering both qualitative factors and quantitative factors (which may vary
across sectors and regions) to incorporate the potential that certain companies could be acquired. We then assign a M&A rank as a means of scoring
companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2
representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not
factor into our price target, and may or may not be discussed in research.
Quantum
Quantum is Goldman Sachs’ proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy focused on the generation of long-term alpha through identifying high quality industry leaders. The GS
SUSTAIN 50 list includes leaders we believe to be well positioned to deliver long-term outperformance through superior returns on capital, sustainable
competitive advantage and effective management of ESG risks vs. global industry peers. Candidates are selected largely on a combination of
quantifiable analysis of these three aspects of corporate performance.
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Michael Lapides: America-Diversified Pipelines, America-Diversified Utilities, America-Energy MLPs, America-Independent Power Producers,
America-Regulated Utilities. Jerren Holder, CFA: America-Diversified Pipelines, America-Energy MLPs.
America-Diversified Pipelines: Antero Midstream GP LP
, Kinder Morgan Inc., ONEOK Inc., SemGroup Corp., Tallgrass Energy LP
, TransCanada Corp.,
TransCanada Corp., Williams Cos..
America-Diversified Utilities: Avangrid Inc., Centerpoint Energy Inc., CMS Energy Corp., Dominion Energy Inc., DTE Energy Co., Entergy Corp., Exelon
Corp., FirstEnergy Corp., NextEra Energy Inc., OGE Energy Corp., Public Service Enterprise Group, Sempra Energy.
America-Energy MLPs: Antero Midstream Partners, BP Midstream Partners, Buckeye Partners, Cheniere Energy Inc., Cheniere Energy Partners,
Crestwood Equity Partners, DCP Midstream LP
, Energy Transfer LP
, Enterprise Products Partners LP
, EQT Midstream Partners, Hess Midstream
Partners LP
, Holly Energy Partners, Magellan Midstream Partners, MPLX LP
, Oasis Midstream Partners, Phillips 66 Partners, Plains All American
Pipeline LP
, Plains GP Holdings, Summit Midstream Partners, Sunoco LP
, Targa Resources Corp., TC PipeLines LP
, Western Gas Equity Partners,
Western Gas Partners.
America-Independent Power Producers: Clearway Energy Inc., NextEra Energy Partners, NRG Energy Inc..
America-Regulated Utilities: Ameren Corp., American Electric Power, American Water Works, Consolidated Edison Inc., Duke Energy Corp., Edison
International, Evergy Inc., Eversource Energy, NiSource Inc., PG&E Corp., Pinnacle West Capital Corp., Portland General Electric Co., PPL Corp.,
Southern Co., WEC Energy Group.
Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, “Goldman Sachs”) and companies covered
by the Global Investment Research Division of Goldman Sachs and referred to in this research.
Goldman Sachs is acting as a manager or co-manager of a pending underwriting: Energy Transfer LP ($14.36) and Phillips 66 Partners ($49.15)
Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be
aggregated under US securities law) as of the month end preceding this report: Energy Transfer LP ($14.36)
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Goldman Sachs has received compensation for investment banking services in the past 12 months: Energy Transfer LP ($14.36), Kinder Morgan Inc.
($18.02), Phillips 66 Partners ($49.15), Plains All American Pipeline LP ($22.92) and Tallgrass Energy LP ($22.92)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Energy Transfer LP ($14.36),
Kinder Morgan Inc. ($18.02), Phillips 66 Partners ($49.15), Plains All American Pipeline LP ($22.92) and Tallgrass Energy LP ($22.92)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: Energy Transfer LP ($14.36), Kinder Morgan Inc.
Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: Kinder Morgan Inc.
($18.02)
Goldman Sachs had a non-securities services client relationship during the past 12 months with: Energy Transfer LP ($14.36), Kinder Morgan Inc.
Goldman Sachs makes a market in the securities or derivatives thereof: Energy Transfer LP ($14.36), Kinder Morgan Inc. ($18.02), Phillips 66 Partners
($49.15), Plains All American Pipeline LP ($22.92) and Tallgrass Energy LP ($22.92)
Goldman Sachs is a specialist in the relevant securities and will at any given time have an inventory position, “long” or “short,
” and may be on the
opposite side of orders executed on the relevant exchange: Phillips 66 Partners ($49.15) and Plains All American Pipeline LP ($22.92)
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global Equity coverage universe
As of January 1, 2019, Goldman Sachs Global Investment Research had investment ratings on 2,945 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by the FINRA Rules. See ‘Ratings, Coverage groups and views and related deﬁnitions’ below. The
Investment Banking Relationships chart reﬂects the percentage of subject companies within each rating category for whom Goldman Sachs has
provided investment banking services within the previous twelve months.
Price target and rating history chart(s)
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 35% 54% 11% 65% 58% 56%
10 February 2019 19
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Regulatory disclosures
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