Although oil prices have remained buoyant in the new year and the outlook for US hydrocarbon production continues to grow, the Alerian MLP Index has remained under pressure, giving up all the gains eked out in January.
Bullish fundamentals aside, this weakness in part reflects the lack of depth in the market for master limited partnerships (MLP), as the more than 80 fund products that offer significant exposure to the space continue to experience outflows and generalist portfolio managers remain on the sidelines because of tax complications and skepticism toward the energy sector.
At the same time, retail investors have also shunned the space, having been burned by distribution cuts and unitholder-unfriendly actions resulting from poor governance and bad incentives.
The MLPs on our Focus List stand out from the pack for their solid balance sheets, organic growth stories and superior ability to self-fund expansion opportunities.
Crestwood Equity Partners LP (NYSE: CEQP) posted strong fourth-quarter results, with distributable cash flow covering the payout by 1.35 times.
The gathering and processing segment led the way during the quarter, with operating cash flow up 20 percent year over year on impressive throughput growth in the Bakken Shale, Delaware Basin and Powder River Basin.
Management’s 2018 guidance calls for a 10 percent increase in operating cash flow at the midpoint, setting the stage for a potential distribution increase in the back half of 2018.
Crestwood Equity Partners has several projects slated to come onstream in the second half of 2018, including pipelines and a processing plant in the Delaware Basin and debottlenecking efforts on gathering and water-handling infrastructure in the Bakken Shale.
As part of its agreement with Consolidated Edison (NYSE: ED) in the Marcellus Shale, Crestwood Equity Partners will also enjoy a 5 percent step-up in distributions from the joint venture, starting in the third quarter.
Future growth opportunities include additional gathering and terminal services in the Delaware Basin, an expansion to its gathering and processing joint venture with Williams Partners LP (NYSE: WPZ) in the Powder River Basin, and the start-up of the second phase of the Bear Den gas-processing plant next year in the Bakken Shale.
Crestwood Equity Partners fully funded its capital expenditures for this year with the sale of its US Salt business, which closed late in the fourth quarter.
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Elliott and Roger on Mar. 20, 2018
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