North American midstream companies are expected to continue exhibiting growth within their portion of the energy infrastructure sector in 2022 as the economy continues to recover and activity increases, reports Fitch Ratings.
The outlook is a positive one for the midstream, due to expectations of oil and gas production growing marginally but at a steady pace over this year’s numbers, as well as commodity prices that are “constructive,” according to the study.
As economic activity recovers and grows, demand is anticipated to increase, equating to volume increases for midstream operators. So far this year, companies have experienced an abundance of free cash flow that has allowed them to improve their balance sheets and reduce debts, as well as create greater shareholder value. It’s a trend that Fitch Ratings believes will continue as companies work to deleverage their positions and extend their restraint on growth spending.
Oil and gas prices are expected to moderate over the course of the next year, and producers will hedge their positions, all leading to higher volumes for gathering and processing issuers, which in turn equates to higher volumes for midstream operators.
Midstream operators are going into 2022 having benefited from a productive year for the industry and sector overall. The counterparty credit quality improved for most companies, and consolidation upstream as well as higher commodity prices helped improve the general credit profiles of production and exploration issuers.
Gain Exposure to Midstream Performance With ENRF
For investors looking to capture the growth anticipated for the energy infrastructure industry going into next year, the Alerian Energy Infrastructure ETF (ENFR) is an excellent option.
The fund seeks to track the Alerian Midstream Energy Select Index, an index that includes a mix of North American midstream energy infrastructure companies, including MLPs and corporations that are involved in storage, pipeline transportation, and the processing of energy commodities.
ENFR invests at least 90% of its assets in securities within the index, and cannot invest more than 25% of its assets into the securities of one or more publicly traded partnerships, including MLPs, per tax code.
Shareholders are not considered to be engaged in the business that MLPs conduct in regards to federal and state tax purposes, and because investments are being put into the fund and not directly into an MLP, income and losses by the fund into MLPs will not pass through to the tax returns of shareholders.
The sector breakdown of ENFR includes a 33.16% allocation to gathering and processing, a 30.77% allocation to pipeline transportation of natural gas, a 26.50% allocation to pipeline transportation of petroleum, 7.18% to liquefaction, and 2.24% to storage, as of December 3.
ENFR carries an expense ratio of 0.35%.
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