I have been long the mlp for awhile and read most of the posts to this board. I find the math you guys are using to value the GP akin to the math used to value some of the growth stocks of the past. One major assumption is that these cash flows will continue to grow at a healthy pace. ALL business' hit a wall at some time. Plus I noticed everyone referencing the recent research reports from Lehman and GS, these guys may be very astute, but they are also after IB biz for thier firms. Bottom line, buyers of XTXI at $80 plus are paying a $700 MILLION premium for a future cash flow that is anything but guaranteed.
Not so fast. If you take the XTXI market cap, net out the 10 million XTEX units you are indeed left with roughly 700 million in value. XTXI has maybe 20 million in cash, so that leaves 680 million to be explained. XTXI currently is raking in 17 million from the IDR's(not counting the 20.4 million it gets from the 10 million XTEX units it owns). So, if you look at it from that perspective, you are paying 680 million for a 17 million cash flow stream. However, XTXI management has already projected a distribution at XTEX that is around $2.48 by year end (listen to the old conference calls when they talk about the accretion from the El Paso deal as well as the Barnett Shale pipeline). The GP Take increases to around 28 million when the distribution is raised from $2.04 to $2.48. Also, XTXI will be raking in an addition 4.4 million from the 10 million units that it owns(.44 increase on 10 million units), meaning a all in increase of around 16 million. That knocks the multiple back down to around 25x (680/27 ) or a 4% yield. Also have to keep in mind XTEX has several large projects in the works including the N LIG expansion, the Barnett Shale expansion which comes online at a 1x multiple to cashflow, the potential for a S. LIG expansion dealing with LNG, numerous projects within the El Paso assets that they acquired. Plus you have to remember that XTXI foots 1% of any acquisition(2% of equity, and since they finance everything 50/50 it comes out to 1% of the purchase price), yets reaps 50% of any accretive cash(they are in the 50/50 splits in the IDR's)(actually more when you consider the units that they own). When you factor in the units they get roughly 70% of all accretive cash, not bad considering the MLP foots the bill.
At $2.48 per XTEX unit I count $29M in IDRs. The price of XTEX unit should also rise; assume $42/unit for the sake of this analysis. That means $620M/$29 = 20.5x GP multiple. That's pretty low. Hence, I hope today's panic continues.