Building oil and gas pipelines in the US is difficult.
That’s a result of legal challenges from environmental groups, political opposition in Democratic states and a glacial federal permitting process.
Yet America’s oil and gas output keeps surging to records, forcing producers to seek additional capacity to move their fuels to market.
While the buy-versus-build calculus appears to have shifted toward acquisitions, dealmaking in the sector has been mostly small-scale.
That’s in stark contrast to the upstream world of exploration and production, which has seen a slew of big takeovers in recent years, culminating in major purchases by Exxon Mobil Corp. and Chevron Corp.
There are signs momentum is now building. Pipeline operator ONEOK Inc. agreed last week to buy controlling stakes in EnLink Midstream LLC and Medallion Midstream for $5.9 billion.
Acquiring EnLink boosts ONEOK’s presence in Louisiana’s gas industry, while Medallion has the largest closely held crude-gathering and transportation system in the Permian Basin, the engine of US fossil-fuel growth.
“We do expect more consolidation in the midstream space,” Raymond James Financial Inc. analysts, including John Freeman, said last week.
One driver is that some companies in the sector have abandoned the complicated master limited partnership structure during recent years, making M&A more straightforward. Earnings have also risen, leaving potential acquirers flush with cash.
Possible targets include Western Midstream Partners LP and Kinetik Holdings Inc., said Ajay Bakshani, director of analytics at East Daley Analytics. “It’s hard to build these assets.”