With oil and gas production rising year-on-year, funding for building out midstream oil and gas infrastructure is needed more than ever to economically ferry the commodities to destinations like refineries, natural-gas liquefaction plants and/or power generation facilities, both domestically and abroad.
Josh Sherman, partner in charge of the Complex Financial Reporting group of Opportune LLP, offers his thoughts on the oil and gas industry, prospects for growth in the Eagle Ford Shale and midstream oil and gas private equity financing.
What is your current view of the midstream oil and gas market and how do you see conditions evolving in the coming months?
Sherman: There are several basins in a strong position for midstream growth where production is close to, or has exceeded, current/near-term production in established/mature basins like the Permian, Eagle Ford and Haynesville. There is also a lack of gathering and processing facilities around emerging/growing basins such as the Powder River, Denver-Julesburg and Arkoma Basins. Silver Creek Midstream, EPIC and Valiant are example private equity portfolio companies in each basin.
More important than production is a tailwind in demand as the U.S. has become a net crude oil exporter and the LNG export and related infrastructure is continuing to emerge. Fueling growth opportunities is a willingness for producers and midstream companies to work together via joint ventures, reversionary interests and up-front payments (for dedications and marketing rights by midstream) in sharing risks and economies.
What are the key challenges you are currently seeing in established basins like the Eagle Ford? What strategies may overcome these challenges?
Sherman: Demand has been the key challenge facing the Eagle Ford. In addition, the 2014 downturn and a continuing “winter” of the public equity markets has resulted in the industry being slow to consolidate assets and construct new infrastructure to the Gulf Coast. A few strategies we see going forward include consolidation, partnering with foreign investment companies (e.g., SK Investments) to fund construction and secure offtake and targeted private equity development opportunities where minimum returns are guaranteed through dedications and delivery commitments. I believe the best opportunities will be driven by new private equity management teams like (e.g., Trace Midstream) that have significant in-basin experience and are laser-focused on the Eagle Ford.
How is Opportune adding value to private equity firms in the buildout of midstream oil and gas infrastructure?
Sherman: Opportune believes it is the only consulting firm that can provide a full suite of back-office, asset integration and technology solutions to private equity. No other consulting firm provides a combination of:
- Reserve engineering firm to assess reserves in place to test acquisition models and economics
- Back-office outsourcing to perform transactional accounting, financial reporting and integration of asset/corporate acquisitions
- Investment banking to support due diligence and capital markets activities through fairness opinions