This New Pipeline Could Unlock Years of Growth for 4 Energy Stocks. Here’s Why That’s a Win for All of Them.

A consortium of energy companies is moving forward with a massive new gas pipeline in Texas. The Solitude Pipeline System is a joint venture (JV) between privately held energy infrastructure developer WhiteWater, oil and gas producers Diamondback Energy (FANG +0.16%) and Devon Energy (DVN +1.88%), and midstream companies MPLX (MPLX -0.20%) and Western Midstream Partners (WES -0.74%). The two-phased pipeline system should start operations in late 2029.

Here’s a look at the new pipeline project and how it will fuel years of growth for those four energy stocks.

Image source: Getty Images.

Introducing the Solitude Pipeline System

WhiteWater and its JV partners recently announced that they reached a Final Investment Decision to build two new natural gas pipelines from the Permian Basin to Katy, Texas. The Solitude Pipeline System will have an initial capacity of around 2.25 billion cubic feet per day (Bcf/d) when the first phase enters commercial service in late 2029. The partners plan to bring the second phase online in 2030, adding another 2.25 Bcf/d of capacity. The JV can further expand the system to meet shipper demand. They’ve already secured substantial long-term firm transportation agreements with investment-grade shippers to back the large-scale pipeline system.

WhiteWater will own 50% of the JV, Devon 25%, MPLX 10%, and Diamondback Energy and Western Midstream Partners 7.5% each. The pipeline system will enable oil and gas producers to deliver more gas from the Permian Basin to demand centers along the U.S. Gulf Coast, including liquefied natural gas (LNG) export terminals.

Today’s Change

(1.88%) $0.86

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Current Price

$46.71

Key Data Points

Market Cap

$50BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day’s Range

$46.04 – $46.75

52wk Range

$31.47 – $52.71

Volume

4.7M

Avg Vol

13M

Gross Margin

27.09%

Dividend Yield

2.27%

Helping unlock the value of Permian gas

The pipeline will help oil and gas producers like Devon Energy and Diamondback Energy to unlock the value of their associated gas production in the Permian. Devon Energy highlighted in a press release announcing its participation in the project that “Permian producers have long absorbed volatile and periodically negative pricing at the Waha hub, where takeaway capacity has repeatedly failed to keep pace with associated gas growth.” The company noted that firm, long-haul capacity to the Gulf Coast changes the equation for producers, enabling them to get more gas out of the region and into markets where they can sell it at higher prices. Solitude is just one aspect of Devon’s strategy to unlock value. It was also a founding equity owner of Matterhorn Express (which it sold last year) and secured shipping capacity to support two other large-scale gas pipeline projects (Blackcomb and Eiger). These initiatives will enable it to continue to profitably grow its production in the region.

Meanwhile, Diamondback has employed a similar strategy. It helped support the development of the Epic Crude pipeline by taking an equity stake and becoming an anchor shipper on the project. It sold that stake last year. That’s one of several midstream-related investments it has made over the years to support infrastructure build-out, many of which it has since monetized. Its investment in Solitude will also help support its continued production growth.

Today’s Change

(0.16%) $0.32

Current Price

$202.79

Key Data Points

Market Cap

$57BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day’s Range

$201.84 – $203.99

52wk Range

$134.30 – $214.51

Volume

254.7K

Avg Vol

2.2M

Gross Margin

37.37%

Dividend Yield

2.59%

Adding another growth driver

Master limited partnerships (MLPs) MPLX and Western Midstream Partners are also participating in Solitude as minority investors. Additionally, Western Midstream has taken firm capacity on the pipelines, enabling it to provide enhanced flow assurance to its customers. Their investment will enable these MLPs to generate incremental cash flow when the pipelines enter service in 2029 and 2030.

Today’s Change

(-0.20%) $-0.12

Current Price

$59.36

Key Data Points

Market Cap

$60BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day’s Range

$59.03 – $59.73

52wk Range

$47.80 – $60.95

Volume

335.8K

Avg Vol

1.5M

Gross Margin

43.71%

Dividend Yield

7.24%

JVs like Solitude enable pipeline companies to work together on a larger-scale project that will have enhanced economics. These investments provide new sources of lower-risk growth. This particular investment also enhances their long-term growth visibility, putting both MLPs in a stronger position to continue growing their high-yielding distributions (7.3% for MPLX and 7.7% for WES) in the early part of the next decade. That makes them even more appealing long-term income investments.

A winning partnership

WhiteWater and its partners are moving forward with a new pipeline system to support additional gas volume growth in the Permian Basin. It will help oil and gas producers like Devon Energy and Diamondback Energy secure better pricing for their gas output, enabling them to continue growing. Meanwhile, it will enable MLPs MPLX and Western Midstream to invest in a project that will provide them with incremental cash flow to fuel future distribution growth. That makes it a winning partnership that should provide a boost for these energy stocks later this decade.