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Gas MLPs Delivering on Bottom Line

By Robert Rapier on February 9, 2016

In last week’s issue I discussed DCP Midstream Partners (NYSE: DPM), whose general partner, DCP Midstream (DCP), is a 50/50 joint venture of Phillips 66 (NYSE: PSX) and Spectra Energy (NYSE: SE). Spectra Energy also sponsors its own MLP, Spectra Energy Partners (NYSE: SEP), which released strong earnings last week.

Spectra Energy Partners owns the natural gas and crude oil assets in Spectra Energy’s U.S. portfolio. SEP’s 17,000 miles of interstate pipelines ship (primarily) natural gas, as well as crude oil and natural gas liquids (NGLs). The partnership also gathers natural gas and can store up to  166 billion cubic feet (Bcf) of it at its facilities in the U.S. and Canada.

SEP’s assets are strategically located in the regions where demand for natural gas — primarily for use in electricity generation — as well as crude oil is expected to increase steadily:

160209MLPIIsepmap

Source: Spectra Energy Partners SEC filing

For the four quarter, SEP reported EBITDA of $457 million, up 7.8% from $424 million a year earlier. The natural gas transmission business accounted for the lion’s share with EBITDA of $413 million, up from $369 million a year ago.

Distributable cash flow (DCF) of $260 million was up 6.1% from the prior-year quarter. For the year, DCF was $1.21 billion, a $150 million improvement on 2014. SEP increased its fourth-quarter distribution 2% from the prior quarter and 8.7% year-over-year.

Distributions per limited partner unit totaled $2.43 for 2015, compared with $2.245 in 2014. DCF coverage for the year was 1.26x, and units currently yield 5.6%.

Also reporting strong results was EQT Midstream Partners (NYSE: EQM), which is sponsored by the Marcellus natural gas producer EQT (NYSE: EQT). EQM’s assets include a transmission and storage system with 700 miles of interstate pipes. The system is supported by 14 associated natural gas storage reservoirs with approximately 400 million cubic feet (MMcf) per day of peak withdrawal capacity and 32 billion cubic feet (Bcf) of working gas capacity. The partnership also operates the Allegheny Valley Connector (AVC), a 200-mile FERC-regulated interstate pipeline that reaches deep into the Marcellus basin.

Bolstered by its long-term, mostly fixed-volume contracts, EQM reported fourth-quarter net income of $112.7 million, up from $84.8 million a year earlier. Distributable cash flow reached $111.9 million, providing distribution coverage of 1.54x for the quarter, and 1.67x for all of 2015.

In the earnings release, EQM reaffirmed its forecast for full-year 2016 adjusted EBITDA of $530-$550 million and distributable cash flow of $460-$480 million. EQM expects to distribute $3.19 per unit this year, which would be up 21% from 2015.

Conclusions

Earnings results are starting to pour in, and despite the ongoing collapse in oil and gas prices, some MLP sectors are showing surprising strength. While it was clearly not a good quarter for those that make a living selling oil and gas, Q4 results from Spectra Energy Partners and EQT Midstream Partners indicate that the business of transporting and storing natural gas has been good for them.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)


 


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