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The variable productivity of shale plays is fueling fierce competition among  pipeline companies looking for long-term contracts to transport reliable quantities of oil and gas. As new shale plays have cropped up around the country, there has been a building frenzy of new pipelines to access them, speakers said at an afternoon session on infrastructure finance at IHS CERAWeek.

But locking in customers for the pipelines has proved to be trickier than once thought, with producers now recognising the broad range of productivity among shale plays and even among locations within a single play. As operators have pulled back on some plays,  it has intensified the competition among midstream players to ensure that they have cash flow locked in.

“There are 90 privately backed midstream companies and they are in a knife fight, looking for long-term contracts,” said CERAWeek panelist Tony Weber, managing partner of the private equity firm Natural Gas Partners. The biggest driver in the hunt for long-term pipeline customers is the tax-advantaged master limited partnership structure adopted by many pipeline interests. Because MLPs typically provide steady cash distributions to investors, they benefit from the guaranteed cash flow in a long-term contract, said Ramey Layne, a partner with Vinson & Elkins, who also spoke on the panel.

Chief Executive Bobby Tudor of Tudor, Pickering, Holt & Co. said some of the growth assumptions MLPs are making could be misleading to investors, many of whom have embraced the partnerships over the past five years or so. Optimistic growth projections in turn are reflected in the trading prices for MLP units–equivalent to shares of stock in other corporations. “I am concerned that MLPs are priced for perfection and assume levels of growth that could be very difficult to sustain over a long period of time,” Tudor said. “We are still in the early days of the shale revolution in North America. What is becoming increasingly clear is that not all land is created equal.”

The Marcellus Shale in the northeaster U.S. and Barnett Shale in Texas, for example, have shown that productivity varies within plays, and that some may not prove to be economically viable. “A lot of pipelines have been built on the expectation that Tier 2 and Tier 3 plays are going to get built out, but it’s not clear to me that that is the case,” Tudor said. “The goals of the MLPs will be very hard to deliver on.”

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