Another Energy Company Gets Bit by the Infrastructure Bug

Photo credit: MarkWest

Oil and gas production in the U.S. is booming. Energy imports are down to the lowest level since 1991. However, as good as production has been, it could have been much better. The problem is that we simply cannot build the infrastructure required to get that production to market fast enough.

The latest victim of this problem is Gulfport Energy . It recently announced that its third quarter production would be in a range of 12,250-12,750 barrels of oil equivalent per day, or BOE/d. That's about 16% less than its guidance range of 14,000-15,000 BOE/d. The good news is that the company isn't changing its production guidance for the year as it expects to have the current problems ironed out.

Gulfport pointed out that its production is being adversely affected by pipeline infrastructure delays. Specifically, it said that its Irons 1-4H well, which was scheduled to begin flowing into a sales pipeline last month, won't begin flowing into sales until the end of next month. Its midstream partner Dominion has experienced pipeline infrastructure and permitting delays. On Gulfport's last quarterly conference call it noted that Dominion was late getting the line complete, but it has now taken much longer than expected.

Infrastructure issues really have been a recurring theme this year for smaller producers in emerging shale plays. For example, Magnum Hunter Resources experienced similar problems last quarter in the Marcellus shale. The company's production on the quarter would have actually been 12% higher if it wasn't for a combination of pipeline and liquid handling issues. Magnum Hunter has since resolved all of its issues, but the risk does remain that infrastructure growth won't keep pace with production growth.

Midstream providers, however, cannot be criticized for these issues. Operators like Dominion are spending heavily to build the infrastructure that producers need. Dominion has even entered into a joint venture with its Utica assets in order to develop the business into a major midstream operator in the Utica shale region. The agreement provided the business with outside capital so it didn't have to compete with Dominion's other major projects for capital.

Another midstream operator in the region is MarkWest . The company, which works with both Magnum Hunter and Gulfport, is rapidly scaling up in both the Marcellus and Utica shale plays. In fact, it has completed 16 major projects in the region while another 22 are currently under construction. It's basically building projects as fast as it can.

There are two important takeaways for investors. First, if an independent oil and gas company reduces its production guidance due to infrastructure issue,s it's nothing to worry about. It's just a temporary problem that will eventually get sorted out. Further, these issues highlight how critical midstream companies are to the process, which is why it's not a bad idea to invest in a midstream provider. The bottom line here, the U.S. energy boom that will continue to be choppy, but there is no end in sight for the growth boom.

That is why infrastructure spending is critical to driving the record oil and natural gas production that is revolutionizing the United States' energy position. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. One of the companies highlighted in that report is working to solve the infrastructure problem. To find out which three companies we think are good buys, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.

The article Another Energy Company Gets Bit by the Infrastructure Bug originally appeared on Fool.com.

Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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