Zacks_Analysts' Blog : Energy Transfer-XTO Service Deal - Analyst Blog

Energy Transfer Partners, L.P. (ETP) will render natural gas gathering, processing and transportation services to XTO Energy, a subsidiary of  ExxonMobil Corp. (XOM), under the terms of a long-term, fee-based agreement.

Per the deal, Energy Transfer will build a 117-mile Red River Gathering Pipeline originating from the Woodford Shale, Oklahoma and extending to the existing gathering and processing infrastructure in the Barnett Shale. The pipeline, which has an initial natural gas transportation capacity of 450 million cubic feet per day (mmcf/d), expandable to 550 mmcf/d, is scheduled to come online by the fourth quarter of 2012.

The partnership will also set up a cryogenic processing plant, with a capacity of 200 million cubic feet per day, at the existing Godley processing facility in Johnson County, Texas. With this new unit, Energy Transfer’s processing capacity at Godley will reach 700 mmcf/d from the current level of 500 mmcf/d. Costing almost $360 million, the plant is slated to be in service by the third quarter of 2013.

Per the XTO Energy spokesperson, the new network of pipelines will render the company with advanced infrastructure, helping it to operative effectively and access bigger markets.

Energy Transfer management believes that this deal will enable the partnership to strengthen its foothold in the Woodford Shale and serve customers better in the Barnett Shale. The upgraded Godley processing facility will also aid the partnership to reap more benefits from the region’s resource rich drilling plays.

Dallas, Texas-based Energy Transfer is a master limited partnership engaged primarily in two businesses. These are gathering, processing, storage and transportation of natural gas, and the distribution of propane.

Recently, the partnership announced plans to sell its propane operations to AmeriGas Partners, L.P. (APU) for approximately $2.9 billion to focus on its key pipeline business. 

We believe that the partnership’s strategically positioned asset portfolio maintains a strong presence in emerging North American shale plays. However, we remain concerned regarding the continued upheavals in the macro environment and cost overruns on expansion projects and thereby maintain our long-term Neutral recommendation.

Energy Transfer currently holds a Zacks #3 Rank (short-term Hold rating).