1 Not So Obvious Play in the Utica Shale
There is a lot of hype surrounding the Utica shale right now. Geologists anticipate the play's energy profile to be similar to the booming Marcellus shale. Companies like Chesapeake Energy that got in early bought up acreage at low prices, and have subsequently made a killing selling it to other oil and gas outfits willing to pay a premium rather than miss out on potential success.
Paying high prices for acreage that may or may not produce commercially viable amounts of energy is a risk for these companies. There is gas in the Utica, and any given company may wind up the big winner. But there is a far less risky play here -- midstream companies such as MarkWest Energy Partners (NYSE: MWE) .
MarkWest recently announced plans to build a 200 MMCF per day processing plant and establish infrastructure to add 100,000 barrels per day of fractionation, storage, and marketing capacity. Fractionation refers to separating the various elements of the natural gas stream. The company is designing yet another processing plant for the Utica, capacity has yet to be announced.
Precedent for success
The upside to MarkWest in the Utica is based on its success in the Marcellus shale. The company has laid plans for two new processing plants in the region with a combined capacity of 400 MMCF/D. Three oil and gas producers have signed agreements with MarkWest that will support the two new facilities: CONSOL Energy (NYSE: CNX) , Noble Energy (NYSE: NBL) , and Range Resources (NYSE: RRC) .
Last year, MarkWest purchased a cryogenic natural gas processing plant from Magnum Hunter Resources (NYSE: MHR) . The plant has a capacity of 200 MMCFE per day and is expected to come on line in the third quarter of 2012.
The new plant will sit adjacent to another plant MarkWest has coming on line in the second quarter. This plant has capacity of 120 MMCFE/D, which means that total new capacity in 2012 should reach 320 MMCFE by the fourth quarter of this year. Fractionation services will be handled at MarkWest's plant in the other Houston -- Houston, Pa.
When these projects come on line, MarkWest will be the top midstream provider in the Northeast, operating 2.3 BCF/D of processing capacity and almost 300,000 barrels per day of fractionation. For that reason, I'm heading over to CAPS to give MarkWest Energy Partners a green thumbs-up.
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