Midstream: The Strong Get Stronger

Chances are you’ve seen the disqualifier “past performance may not be predictive of future results.” But while that’s perfectly apropos for financial products and services, the opposite is increasingly true for midstream energy companies and MLPs.

For example, a company with a high distribution coverage ratio one quarter is much more likely to have a higher one the next than a company with narrow coverage. That’s because the high coverage company is by definition holding in more cash, and is therefore less dependent on capital markets to fund CAPEX to build further cash flow.