A unit of CenterPoint Energy Inc. ( CNP ) − CenterPoint
Energy Bakken Crude Services, LLC (CEBCS) − has inked a long-term
midstream deal with an affiliate of the U.S. energy behemoth
ExxonMobil Corporation ( XOM ), XTO Energy
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The agreement calls for CenterPoint to collect XTO's crude oil
produced in North Dakota in a new crude oil gathering and
transportation pipeline system. The system is expected to be able
to gather and ship oil produced from wells in McKenzie and Dunn
counties, with a maximum capacity of 19,500 barrels per day
The latest pact gives CenterPoint its first client for a pipeline
system under construction in the Bakken shale play. This
demonstrates the stepped-up infrastructure activity taking place in
the shale plays in tandem with reinvigorated U.S. oil drilling.
Limited pipeline capacity in the region has led many oil producers
to transport their oil through rail and the bottleneck has created
a region-specific discount for crude oil prices.
This deal will unlock significant growth opportunities for
CenterPoint and allow it to diversify its product gathering
capabilities and geographic footprint. We remain upbeat on
CenterPoint Energy based on its stable regulated utility and gas
distribution operations, growth in the pipeline and gathering
system business, higher rates, ongoing infrastructure development
projects, a strong balance sheet and a high dividend yield.
For its gas gathering business, the company tends to enter into
long-term contracts with volume commitments and acreage dedication,
which insulates CenterPoint's margins from volatility in gas prices
and a lower level of drilling activity.
However, we remain cautious on CenterPoint's stock owing to its
pending regulatory cases, including the outcome of the Texas rate
case, the tepid economy, lower demand for electricity, falling
wholesale natural gas prices and a significant presence in a
hurricane prone region of the U.S.
CenterPoint currently has a Zacks Rank #3 (Hold). We rather prefer
the Zacks Ranked #1 (Strong Buy) utility stocks Brookfield
Infrastructure Partners L.P. ( BIP ) and
Empresa Nacional de Electricidad S.A. ( EOC ).