In past natural resources posts, oil and gas exploration companies have been featured. They are generally smaller companies working to make their mark and achieve “going concern” status. These companies, however, are at the beginning of the food chain. They come in all shapes and sizes but operate to get the oil and gas to combust when and where it should. Understanding that these companies are just as solid for profit opportunity as the oil and gas exploration companies is not all that difficult. Finding them can be. An investor that can find a solid company capitalizing on oil and gas exploration is one that may also find profit.

Crosstex Energy L.P., a midstream natural gas company, works to transport, treat and market natural gas. The company currently services 4bcf of natural gas per/day with approximately 5,700 miles of pipeline, 12 processing plants, 4 fractionators and approximately 195 amine treating and dew point control plants.

Although one might think the transporting and treating of natural gas would be a fairly straight- forward process, it is not. Natural forces and market conditions play a large factor in the overall scheme of getting treated product to market. This past third quarter saw a dip in revenue due to hurricane damage, market conditions and product interruption. Fortunately, the disruption was short lived, but it did show that the process of getting natural gas from “here” to “there” is not just a matter of installing pipe and making connections.

Making connections and gathering natural gas, however, did expand in the third quarter 2008 to a degree. Margins increased 13% as gathering systems and throughput increased around Barnett shale locations in North Texas (a major system node for the company with several pending issues.) Treatment of gas also saw similar increases for the quarter with throughput and larger plant size helping to maintain production levels.

The future looks fairly bright for the company as national leaders come to understand the need for expansion of the country’s natural gas infrastructure and use. The shorter term realities, however, do still hold to the nature of a commodity item and the need for access to capital (as witnessed by the company’s sale of two non-core properties to generate capital and pay down debt.)

Prices are sure to rise and fall in relation to the needs of a slowing domestic industrial base, but a cycle is just that … a cycle. Finding an investment at the lower end of a cycle is the trick. Lower demand will affect additions to throughput in the shorter run, but only to the degree that a balance point allows for the economy to continue to operate and homeowners to heat their homes.

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