Midstream Oil & Gas Leases: Pipelines, Storage & Processing

Evaluating Midstream Assets Properties

Infrastructure Quality and Capacity

When evaluating midstream assets, one of the first things to assess is the quality and capacity of the existing infrastructure. This includes pipelines, storage facilities, and processing plants. Make sure to review the age, maintenance records, and current operating capacity of each asset. Older infrastructure may require significant investment to maintain regulatory and operational standards, while newer, well-maintained assets offer more reliability and fewer immediate capital needs. Also consider the type of product the infrastructure is designed to handle (crude oil, natural gas, NGLs, etc.) and whether it aligns with current and projected supply volumes.

Location and Connectivity

The geographical location of midstream assets is crucial for both operational efficiency and commercial opportunity. Assets that are strategically positioned near significant production areas, refineries, or export terminals tend to provide more value. Evaluate the connectivity of the asset to key markets and other infrastructure: closer proximity and better connectivity often means lower transportation costs and increased access to customers. Additionally, consider any potential for expansion in growing production basins or emerging market areas, as assets in these locations may offer higher growth potential.

Commercial Agreements and Regulatory Environment

It's vital to review the commercial agreements associated with the midstream properties, such as transportation contracts, throughput commitments, and tariff structures. Long-term, fee-based contracts reduce revenue volatility and provide predictable cash flows. Pay attention to contract duration, counterparty credit quality, and renewal terms. Finally, examine the regulatory environment—understand federal, state, and local regulations that impact operations, such as FERC oversight or environmental restrictions. Properties in favorable regulatory settings are typically more attractive, but be aware of any pending changes that could impact profitability or operational flexibility.