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Why the recent CHK acquisition is positive for Access Midstream

Ingrid Pan, CFA

Why Chesapeake Energy's asset sale is positive for all parties (Part 3 of 4)

(Continued from Part 2)

Access Midstream 

On February 28, 2014, Exterran Partners LP (EXLP) announced that it would acquire certain natural gas compression assets from Chesapeake Energy (CHK) for $360 million. Simultaneously, Access Midstream Partners (ACMP) announced that it would purchase 103 compression units with 200,000 horsepower of capacity for $160 million from Chesapeake Energy. These companies affect the Oppenheimer SteelPath MLP Funds Trust (AMLP) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

To provide some context, Access Midstream is a master limited partnership with a market cap of $10.9 billion and enterprise value of $13.9 billion. ACMP performs natural gas gathering and processing services and is the largest MLP engaged in these services as measured by throughput volume. The company’s assets are located in the Barnett Shale (North Texas), Haynesville Shale (Louisiana), Marcellus Shale (Appalachia), Mid-Continent region, Eagle Ford (South Texas), Utica Shale (Appalachia and Ohio), and Niobrara (Rockies). The company’s general partner interest is half owned by Global Infrastructure Partners and Williams Companies (WMB).

The assets ACMP plans to acquire from Chesapeake are located in the Marcellus and Utica Shales, where ACMP already has operations, resulting in a bolt-on acquisition in an area where activity is strong. The graphic above shows an overview of ACMP’s existing Marcellus assets.

ACMP noted that it’s acquiring the assets at an ~8x forward EBITDA multiple, implying that it expects to earn $160 million / 8 = $20 million of EBITDA from the assets over the next year. Note that ACMP forecasts EBITDA of $1.0 billion to $1.1 billion for 2014. Management noted that it expects the transaction to be accretive to distributable cash flows, which means that it expects that distributable cash flow per unit should increase as a result of this transaction. Distributable cash flow is one of the main factors that the board considers when determining an MLP’s quarterly distribution level. Generally, higher DCF results in higher distributions. As a major determinant in MLP valuation is distribution yield, higher distributions also imply higher valuations.

To see how the announced transaction affects Exterran Partners (EXLP), please see the next part of this series.

Continue to Part 4

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