Infrastructure is critical for exploration and production companies that are developing the high growth shale plays in North America, and the industry is moving towards building or otherwise securing this infrastructure. Infrastructure refers to the physical assets needed to gather, process and move natural gas to a hub for sale to the customer. This includes compression equipment, gathering systems and pipelines.

IN PICTURES: Eight Ways To Survive A Market Downturn

The Backbone Of The Industry
Some investors may see the infrastructure as a side issue for an exploration and production company, but in reality it is as important as the actual development of the assets themselves. Southwestern Energy (NYSE:SWN), which has spent years developing and boosting its production out of the Fayetteville Shale, recently saw its stellar production growth interrupted by pipeline issues in that area.

Due to inspection and maintenance of the Fayetteville Lateral of the Boardwalk Pipeline, Southwestern Energy reduced its guidance for 2009. The company said that its total curtailed volumes would approximate 15 Bcf of natural gas. Despite this set back, the company still expects to increase production by 45% over 2008.

The Players
Petrohawk Energy (NYSE:HK) has a midstream subsidiary with a $300 million capital budget in 2009. This unit is responsible for building the infrastructure needed to bring Petrohawk's production to market from the Haynesville Shale and other shale plays it is involved in.

Enbridge Inc. (NYSE:ENB) is planning on adding additional capacity in the Haynesville Shale. The company is building the LaCrosse Pipeline running from Panola County, Texas across Louisiana to connect with existing infrastructure in Washington Parish, Louisiana. The pipeline will be completed by 2012, and can carry as much as 1.8 billion cubic feet per day of natural gas. The company is even considering an extension of the LaCrosse Pipeline into Mississippi if the capacity is needed.

These assets can be quite valuable, and during the financial crisis when sources of credit dried up, many exploration and production companies monetized assets in this space to raise funds to either de-lever balance sheets or fund capital exploration programs.

Late in 2008, Quicksilver Resources Inc (NYSE:KWK) sold its midstream gathering and compression assets in the Barnett Shale, and used the funds to pay down some of its debt. Berry Petroleum (NYSE:BRY) sold its gas gathering system in May 2009, raising $18.5 million, which it allocated towards more drilling. EXCO Resources, Inc. (NYSE: XCO) took a similar action a few months later and sold 50% of its midstream assets in the East Texas and North Louisiana area.

The Bottom Line
The exploration and production industry is investing heavily in developing the emerging shale plays in North America using new technology to grow production. Along with this growth comes the necessity of securing midstream assets to gather and bring the natural gas to market for the consumer. (For more, see our Oil And Gas Industry Primer.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  2. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  3. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  4. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  5. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  6. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  7. Mutual Funds & ETFs

    Top 3 Commodities Mutual Funds

    Get information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
  8. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  9. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  10. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!