APL: A Midstream Company's Place in the Energy Industry

It's no secret there has been an enormous resurgence in energy production in this country over the last few years, says Matthew Skelly, Head of Investor Relations at Atlas Pipeline Partners, who explains where this midstream company fits in the energy chain.

You've read it in every newspaper on, almost, a daily basis. You've seen it on TV. You can't watch TV for five minutes without seeing a natural gas commercial. That's because there's an energy resurgence going on in the United States, and one of the reasons has to do with the fact that drilling technology has progressed in leaps and bounds.

In the old days, a company would typically just drill a well vertically, down 4,000, 5,000, 6,000 feet, and then grab whatever could be pulled out of that well. That was the traditional way of oil and gas drilling, that's what drilling has been like, basically, for the last 80 years.

However, now companies are participating in what's called horizontal drilling. A company still drills down vertically that initial 4,000, 5,000, 6,000 feet, but then they slightly curve the drill bit and also go laterally in a horizontal direction. They can go for up to a mile, or a mile and half, horizontally, and then, on that horizontal portion, they're fracturing (or fracking) that shale with a mix of sand, water, and chemicals at high pressure and releasing the oil and gas in the well.

As a result, a well today produces multiples in volume of what a traditional, old well would produce, because a company is tapping much more of the reservoir on the horizontal section of the well. Today, a typical well might produce seven times what an old well used to produce, and it could cost up to four times more. That's seven times the volume, at four times the cost. Plus, these wells are so much more economical to produce, because of this capital efficiency uplift.

The energy resurgence occurring in this country means that, with so much drilling going on, so much infrastructure is needed to support that drilling, in the form of pipelines and processing plants.

The technology of fracturing (and the horizontal style of drilling), is changing America's needs on the energy front. At the epicenter of this infrastructure build-out is Atlas Pipeline Partners (NYSE:APL), a midstream gathering and processing company that trades as a Master Limited Partnership, (MLP). Atlas Pipeline is essentially a middle man between the drillers and long-haul transportation pipelines. It gathers mixed volumes of natural gas and natural gas liquids (NGLs) such as ethane, propane, and butanes, etc. from the thousands of wells drilled by its drilling customers, back through pipelines to its processing plants, which will separate the gas from the NGLs. Both are then sold to long-haul transportation pipelines, which take the two products downstream to the next part of the energy supply chain.

Atlas Pipeline is an integral part of the energy process. The drillers can't get paid unless they use a midstream gathering and processing company. As long as the drillers keep drilling, midstream companies like Atlas Pipeline will continue to build the infrastructure to support them…and America.

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