Mostly the company owns gathering and processing assets. Volume concerns are an issue in the Barnett
(15% of EBITDA), as it’s a dry gas region with Quicksilver as a major customer. Since their bankruptcy
filing however, and even before, Quicksilver has not missed any payments.
The Bakken rail loading facility (the Colt system) has a major contract with Tesoro, and naturally in this
environment investors are worried about volume declines there and new pipelines. I note that the
Tesoro refiners that buy this crude are on the West Coast, where currently there are no major pipelines
either existing or planned. In Q2, volumes grew by 10%.
The other Bakken gathering assets are still showing growth in volumes (57MBbls/d in Q2 vs 55.8 in Q2
2014). EIA data also show increased production in the Bakken in the 1-2% range. Their acreage is quite
central and likely will be up a bit. Customers there include WPX, Halcon (a risk but they have liquidity),
QEP (good balance sheet), XTO and WLL. The company estimated that 75-80 new wells will be
connected in 2015 (with 38 through June).
In the Marcellus, the company has contracts with Anadarko, Antero and Cabot. Volumes have been firm
in the NE region of the Marcellus (where differentials are ok). In the SE region, Antero has scaled back
production and there are some volume declines. But recently, Antero has moved 3 rigs back to this area
and a new pipeline in Q4 this year should alleviate terrible differentials (pricing well below Henry Hub).
The company also recut a deal with Antero to provide some fee relief too, also providing incentives to
increase drilling.
In my downside case, I assumed the low end of guidance this year, then took out all deficiency payments
for MVC’s that are not being met, and reduced volumes by 10% outside of the Bakken/Marcellus. Recall
that 90% of the company’s EBITDA is generated from volume based contracts. The other 10% is NGL
price driven (primarily Butane and Propane, which seasonally hit in the winter).
That takes DCF to 43c/unit (of CEQP proforma). If the dividend were cut from 55c to 43c, and using a
10% yield, higher than other comps today, then the stock would trade to $4.30, up 70% before
distributions. The best comps probably are slow growth MLP’s with much of their EBITDA from fees (I
used WPZ, ETP, MWE, SMLP and PAA which are an 8.7% yield).
