US midstream activity heats up

Oil prices have stabilised to the point where infrastructure investors are comfortable putting large amounts of capital to work in assets that transport and store the commodity.

The US midstream sector has been one of the hottest infrastructure investment destinations in 2017. A long list of fund managers have put billions of dollars of capital to work in pipelines, storage terminals and gathering systems.

A few years ago, this would not have been the case. In 2014 global oil prices came crashing down in the second half of the year, with a barrel of West Texas Intermediate losing half its value by July 2015. Prices bottomed out by January 2016, falling from $109 to $29 per barrel in around a year and a half.

Since then, oil prices have risen and stabilised at the $45 to $55 per barrel range. Not as lucrative as before the crash, but steady prices and new drilling technology have enticed upstream players to return.

With a rush of oil flowing, primarily from fields in and around West Texas, assets are needed to transport and store the commodity. A growing number of investors have responded, leading to some chunky midstream deals this year.

Investors with their strategy entirely focused on the energy sector were quite active, including NuStar Energy’s $1.47 billion acquisition of oil transport company Navigator Energy and EIG Global Energy Partners’ $500 million investment in a 200-mile pipeline.

Managers with a more general strategy committed to the sector in a big way as well, with Blackstone Energy Partners’ $2 billion acquisition of EagleClaw Midstream Ventures and Global Infrastructure Partners’ $1.82 billion purchase of Medallion Gathering and Processing emerging as standout deals.

If the deal pipeline continues to be this rich, 2017 might end up being a stellar year for the perennially popular US midstream sector.