Opportunity

• Our domestic need for future natural gas infrastructure will require $6 billion to $10 billion of annual investment by 2030. According to an October 2009 study by the INGAA Foundation, our long-term supply and demand outlook shows our natural gas consumption growing from 26.8 trillion cubic feet (Tcf) in 2008 to 31.8 Tcf by 2030, or an 18% increase in consumption. In order to accommodate interregional transmission and pipeline capacity between major domestic growth areas, it is estimated that 15,000 to 26,000 miles of new gathering pipelines must be integrated, in addition to the repairs and replacement of 88% of aged gas pipeline systems built before 1970.

• Small and privately financed independents are now moving the midstream transaction market. In 2009, most midstream master limited partnerships (MLPs) and natural gas producers realized substantially declining gross margins since their 2008 commodity price peaks. As a result, MLPs and producers experienced decreased available capital and liquidity to expand their midstream portfolios. Although overall operating and financial conditions have since improved, the current market outlook expects most MLPs and producers to maintain higher amounts of liquidity by avoiding excess leverage and suspending midstream growth. Thus, independents with access to substantial private equity and limited exposure to fixed payment obligations are well positioned to develop carefully planned greenfield opportunities or to purchase assets as they are divested in the marketplace.

• Midstream energy investments offer an advantaged asset class profile. The underlying assets of natural gas pipeline systems are tangible and long-lived, with durable cash flow streams and stable revenues resistant to inflationary effects. Valuations are generally based off determinable long-term forecasts of cash flow without the need of exit assumptions. Capital for these investments are often long-term and investment grade with value-creation financing and hedging which allow for flexible cash flow management. Operationally, improvements are mild and often straightforward, providing quick capital recovery.  In addition most midstream energy assets are simple in operation increasing investment yield management.