Access Midstream Partners’ fixed-fee model: Assured distribution

Market Realist

A must-know MLP analysis: The recent distribution growth (Part 3 of 4)

(Continued from Part 2)

Access Midstream Partners

Access Midstream Partners, L.P. (ACMP) is a master limited partnership that provides natural gas gathering and processing services under long-term, fixed-fee contracts for energy companies like Chesapeake Energy Corporation (CHK). It operates gathering systems and pipelines in major shale plays like the Barnett in north-central Texas; Eagle Ford in South Texas; Haynesville in northwest Louisiana; Marcellus in Pennsylvania and West Virginia; Niobrara in Eastern Wyoming; and Utica in Eastern Ohio, as well as the Mid-Continent region, which includes the Anadarko, Arkoma, Delaware, and Permian basins. Note that Access Midstream Partners is a component of the Alerian MLP ETF (AMLP) as well as the Global X MLP ETF (MLPA), and Chesapeake is a constituent of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

On April 28, ACMP announced a cash distribution of $0.575 for the first quarter ended March 31, 2014. This represents a 3.6% increase on a sequential basis and 23% year-over-year. The distributions will be payable on May 15, 2014.

As mentioned above, ACMP holds strong positions across major shale plays including the Barnett, Eagle Ford, Haynesville, Marcellus, etc. This gives it an edge over its competitors. Plus, ACMP has long-term, fixed-fee contracts with energy companies like CHK, which means fixed and stable revenues. That means, regardless of the volumes transported by ACMP, even if they don’t meet minimum volume commitments, its customers pay a fixed fee. This limits the company’s exposure to commodity prices and hence eliminates risk.

So, a stable and assured cash flow ensures strong distribution growth for ACMP. The above distribution amounts to $2.22 on an annualized basis and represents a yield of 3.8%.

Outlook for 2014

In 2014, Access Midstream Partners plans capital expenditures of $1.1 billion to $1.2 billion. Most of ACMP’s capital expenditures will focus on the Utica Shale, where it expects to invest $1.8 billion by 2015, and the Niobrara Shale, where it expects to invest $300 million by 2015. ACMP’s Midcon acquisition was in line with this guidance provided previously. On March 31, 2014, ACMP acquired midstream compression assets from MidCon Compression, L.L.C. (MidCon), a wholly owned subsidiary of Chesapeake Energy Corporation, for ~$160 million. Midcon operates primarily from the Utica shale region.

Investments in the Utica and Niobrara shales will be the driving force for distribution growth in ACMP. The management expects that the company is capable of delivering ~15% annual distribution growth.

For more on Access Midstream Partners, read An investor’s must-know guide to Access Midstream Partners (ACMP).

Continue to Part 4

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