Independent oil and gas producer QEP Resources (NYSE: QEP) created QEP Midstream Partners LP to monetize its midstream assets and to help fund the development of its acreage in the Rocky Mountains, the Bakken Shale and the Texas-Oklahoma Panhandle.
The MLP owns four oil- and gas-gathering systems and two regulated pipelines that handle some volumes from North Dakota, but primarily serve Utah’s Uinta Basin and the Green River Basin in Colorado and Wyoming
These 1,500 miles of pipelines generate a steady stream of fee-based income and involve little direct exposure to commodity prices. The customers that have reserved capacity on these systems include QEP Resources, Anadarko Petroleum Corp (NYSE: APC), EOG Resources Corp (NYSE: EOG) and Ultra Petroleum Corp (NYSE: UPL).
Even better, 71 percent of the contracts covering this capacity have at least seven years remaining, insulating the MLP’s cash flow against reduced drilling activity in basins that produce primarily natural gas. And most of the partnership’s pipelines and gathering systems are backed by acreage dedications from major customers and allow for inflation-indexed adjustment.
Drop-down transaction from QEP Resources will drive much of QEP Midstream Partners’ cash flow and distribution growth. Between 2007 and 2012, the MLP’s sponsor invested $1.1 billion in new midstream assets to support its growing production. These projects include another 900 miles of gathering systems and five gas-processing and fractionators that separate NGLs from the natural gas stream and into discrete components.
QEP Resources holds more than 60 percent of the MLP’s outstanding units and the general-partner interest in QEP Midstream Partners, incentivizing the parent to drop down assets to the partnership.
Your complete guide to energy investing, from growth stocks to high-yielders.
In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Jan. 30, 2018
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.