Russia’s invasion of Ukraine has radically changed the energy landscape. This drives up oil and gas prices, forcing countries to prioritize energy security. These factors give US energy companies the confidence to start increasing production. But they will need more infrastructure to support higher production in the future.
Pipeline companies begin to take advantage of this change. They are able to secure enough customers to support new infrastructure projects. Intermediate EnLink (ENLC 0.20%) and MPLX (MPLX 2.11%) have recently benefited from these improved market conditions, and they may now have more fuel to grow their high yield dividends in the future.
hit the gas
EnLink and MPLX partner with oil and gas producer Devon Energy (DVN 0.59%) and private infrastructure company WhiteWater on the Matterhorn Express Pipeline. The 490-mile pipeline will be able to transport 2.5 billion cubic feet per day (Bcf/d) of natural gas from the prolific Permian Basin to Houston, Texas. It will receive gas from several locations in the Permian, including a direct connection to processing plants in the region via a 75-mile lateral and the 3.2 Bcf/d Agua Blanca pipeline operated by WhiteWater and MPLX.
The pipeline will support producers like Devon Energy as they ramp up production in the Permian in the years to come. The partners have secured enough customers to make a positive investment decision on the pipeline, which they expect to complete by the third quarter of 2024, assuming regulatory and other approvals.
The Matterhorn Express pipeline will produce predictable cash flows when it comes into service, guaranteed by these firm transportation agreements with customers. This will give midstream companies EnLink and MPLX more cash flow to support their dividends, which yield 4.5% and 9.3% respectively. It will also provide Devon Energy with stable cash flow to fund its attractive payment, which yields about 8% by adding its variable dividend.
Complete their growth drivers
MPLX has already several expansion projects under construction and in development. It expects to complete construction of two processing plants this year. Meanwhile, it recently made a final investment decision to expand its Whistler pipeline. The company and its partners, including WhiteWater, have received enough firm transportation agreements with shippers to move forward with an expansion from 2 Bcf/d to 2.5 Bcf/d, which they say will be in service by September 2023. It is also looking to expand its oil pipelines.
MLPX’s cash flow should continue to grow over the next few years by adding Matterhorn to the mix. Given its strong financial profile, the Master Limited Partnership (MLP) should be able to continue returning more cash to shareholders. MPLX has already increased its high yield distribution by 2.5% last year to accompany a large special distribution and redemption program.
Meanwhile, EnLink’s cash flow is increasing thanks to rising commodity prices, which are driving increased volumes in its legacy systems. These improving market conditions also provide EnLink with new opportunities for expansion beyond the Matterhorn. The company has increased its capital expenditure range from $230-260 million to $280-310 million, which should drive near-term growth.
He is also working on longer term opportunities. She signed a letter of intent with western oil (OXY -1.09%) subsidiary Oxy Low Carbon Ventures to provide it with carbon dioxide transportation services. The potential project would use new and existing pipelines operated by EnLink to move carbon dioxide captured by Occidental to a sequestration center it is developing.
Projects like these will provide EnLink with more cash flow to return to shareholders. In addition to paying an attractive dividend, EnLink is buying back its shares. Meanwhile, with its cash flow expected to continue to increase as its share count declines, EnLink should be able to increase its dividend per share in coming years.
More income to come
EnLink and MPLX already offer investors attractive income streams. However, with improving energy market conditions, they are expected to generate even more cash flow in the future, especially as they complete new expansion projects like Matterhorn. This should give these pipeline companies the fuel to pay out even more generous dividends in the years to come.