Year in review: A flood of midstream activity

The US midstream sector was one of the most active in 2017, with many deals coming out of West Texas. Will it keep up the momentum in 2018?

With oil prices stabilising after hitting rock bottom the previous year, 2017 was a banner year for the US midstream sector.

As prices settled in the $50-per-barrel range, activity in the space heated up, with several deals topping $1 billion. Much of the activity centred around the Permian Basin in West Texas.

Blackstone was involved in two of the year’s biggest midstream acquisitions. In April, the private equity giant agreed to pay EnCap Flatrock Midstream $2 billion for EagleClaw Midstream Ventures, which runs more than 600km of natural gas pipelines in West Texas’s Permian Basin. Blackstone followed that deal with a $1.57 billion investment in the 1,150km Rover Pipeline, which left the firm with a 32.4 percent interest in the project. Blackstone bought a 49.9 percent share of the Rover, which will run from Michigan to Pennsylvania and West Virginia, from Energy Transfer Partners, the majority owner. Blackstone also bought Harvest Fund Advisors, a Pennsylvania-based midstream advisory firm managing $10 billion in assets, in August.

Blackstone was not alone in making moves in midstream. In June, Alinda Capital Partners sold Houston Fuel Oil Terminal Company, a 16.8-million-barrel oil terminal, to SemGroup, a Tulsa-based oil and natural gas transporter, for $2.1 billion. Alinda’s exit came five-and-a-half years after the Connecticut-based firm bought HFOTCO from AL Gulf Coast Terminals, an ArcLight Capital Partners affiliate.

Global Infrastructure Partners got into the act through both its record $15.8 billion equity fund and its debt arm. In October, GIP’s Fund III agreed to pay $1.82 billion for Medallion Gathering and Processing, a crude oil transportation system, including around 1,300km of pipeline in West Texas. The previous month GIP’s Capital Solutions Fund took a majority position in a preferred equity investment of up to $250 million in Caprock Midstream, a Houston-based firm.

The activity by no means ended there (see our timeline), and so far, the trend shows no signs of slowing.

Will the midstream space stay hot in 2018? Some forecasters expect oil prices to rise in the coming year, which could give midstream a renewed boost. Even if prices remain low but stable, there is no reason to expect too dramatic a slowdown. In its annual look-ahead, Fitch Ratings forecasted “a stable operating environment for the North American Midstream energy sector in 2018 as relatively favourable supply and demand fundamentals support opportunities across the space”.

“Concerns remain focused on increased competition, equity market access and volumetric risks.” Fitch senior director Peter Molica added.

Whether or not 2018 brings the same level of activity, 2017 certainly set a high bar.