PennTex Midstream Partners

Natural gas production is booming in the United States thanks to hydraulic fracturing of wells, but exploration and production companies need strong midstream partners to get their product to customers. That need was the occasion for the creation of PennTex Midstream Partners LP in January 2014.

PennTex’s management team has a long track record of building and operating successful midstream companies. Through strategic partnerships with exploration and production companies, PennTex links producers to downstream markets for natural gas and its components and ultimately to the industrial, commercial and residential end users. PennTex offers gathering, processing, residue gas transmission and liquids take-away for each of its customers’ specific needs.

“We’re a relatively new company,” President and COO Rob Bond concedes. “As we look at the master limited partnerships marketplace today, we think about it somewhat differently than two years ago, when everyone was focused on growth. The faster you grew, the more you were appreciated, and the better your stock performed. Today, we think about who our counterparties are, how creditworthy they are and how likely they are to continue to drill and produce hydrocarbons.”

As its customers prosper, so does PennTex. “Part of our ability to grow is a function of our customers’ ability to grow and drill and complete new wells,” Bond notes. “The two major things we think about in this more challenging environment are the strength of our customer and the strength of our contract. Because in today’s world, it won’t make a whole lot of difference if I make a good deal with someone who’s not around tomorrow. It’s a very different world than it was when we formed PennTex only two short years ago.”

Strong Counterparty
PennTex has entered into a long-term relationship with Memorial Resource Development (MRD) Corp., an exploration and production company focused on the Terryville natural gas complex in northern Louisiana. PennTex has constructed two cryogenic natural gas processing plants specifically to serve MRD’s needs, underpinned by PennTex’s long-term processing agreement with MRD. The second of the two plants, Mt. Olive, went into service this past September.

The Mt. Olive plant is a 200-million-cubic-feet-per-day (MMcf/d) design-capacity cryogenic natural gas processing plant near Ruston, La. It has on-site liquids-handling facilities for inlet gas. PennTex subcontracts design and construction of its facilities to specialists, although its full-time employees operate the facilities once they are completed.

In addition to its primary customer, MRD, PennTex also actively works with other producers in the region, such as WildHorse Resources II LLC, which recently signed an agreement with PennTex to provide midstream solutions for its production. PennTex’s sponsor is private equity firm Natural Gas Partners (NGP), whose portfolio includes many successful exploration and production companies.

Withstands Fluctuations
PennTex’s seasoned management team has lived through the energy industry’s cycles more than once. “When you’ve been through one or two of these cycles in your career and know how to respond and handle it, you also know there will be great opportunities that come out of the downturns and shakeouts,” Bond points out. “It’s easy for everybody to have a really good team when things are going well, but I’m very proud of my team at PennTex during what I consider to be much more challenging times.”

Companies that have taken on too much debt will create opportunities for others such as PennTex. “It’s a challenging environment for anyone who is in the energy business,” Bond observes. “The capital markets are obviously in distress, as evidenced by the stock prices of many of our peers.”

But Bond expects PennTex to withstand those challenges. “PennTex has a very strong balance sheet, a very low leverage ratio and a very good coverage ratio with respect to our distribution payout to our unit-holders,” he says. “We believe our financial strength will allow us to be opportunistic.”

A Big Opportunity
PennTex was initially formed because of a compelling opportunity. “We were intrigued by the opportunity that was initially presented to us in northern Louisiana,” Bond recalls. “It was an excellent opportunity in search of a long-term solution, and fortunately, we were able to provide the best long-term solution to the problem at hand.” That led to the formation of what ultimately became PennTex Midstream Partners LP.

“Additionally, our private company parent was also able to go out and buy a troubled midstream asset in the Permian basin and really turn that one around,” he adds, referring to PennTex Permian, a subsidiary of PennTex’s private company parent, that operates a gathering and processing system in the Delaware sub-basin of the Permian basin in Reeves County, Texas.

PennTex Permian owns and operates a 60 MMcf/d cryogenic natural gas processing plant and approximately 140 miles of gathering and natural gas liquids (NGL) pipelines and the associated compression assets. PennTex Permian began operations in March 2014 and has secured long-term acreage dedications from active producers in the region.

Bond attributes PennTex’s success to the experience of its management team, most of whom had worked together at different companies before. “We were able to really reach out to those people that we had worked with in most of our roughly 30-year careers and cherry-pick those folks we thought were the very best,” Bond says.

“From that, we have built a terrific team, one that’s a bit more seasoned than what you would find at a more traditional, private-equity-backed startup company and a relatively new public company.”

For the future, Bond foresees continued growth. “We expect that our growth over the next couple years will be acquisition-driven, rather than organic, to a greater degree than I would have predicted a year ago,” Bond concedes. “The world has changed so significantly from where we started – we are in a very different place than we expected to be. However, we want to continue to grow PennTex. We have a strong foundation on which to grow, and we expect our organization to continue to do that.”