THIS MONTH’S ISSUE
Midstream Energy: Key Numbers, Prospects and Mergers Heat Up
Editors’ Note: Here’s part two of your August issue of Energy and Income Advisor, focused on our midstream recommendations. As a reminder, our monthly webchat will be Tuesday afternoon, August 29 starting at 2 pm ET. It’s the ideal time to ask us anything. —E.G., R.C. Q2 2023 was always going to be tough one for energy sector earnings comparisons. That includes the best in class midstream companies in our model portfolio. As noted in August EIA part one, North American shale oil and gas producers have undergone a revolution in thought since the boom times of the previous decade. No longer is the goal growth at any price. It’s smart drilling to optimize profitability so companies can maximize free cash flow no matter the price environment—and thereby to reward investors with stock buybacks and dividends while continuing to reduce debt. That conservatism has kept midstream system throughputs generally subdued, with the notable exception of reserve basins positioned to serve exports. Meanwhile, lower commodity prices have compressed margins for the portion of sector companies’ earnings that’s not fee based. And while best in class midstream companies were able to expand asset bases conservatively, others more dependent on fewer customers and...
Live Chat
with Elliott Gue and Roger ConradOn 09/26/2023
What the Latest Midstream Merger Means for Investors
It’s official: Model Portfolio midstream Crestwood Equity Partners (NYSE: CEQP) has agreed to be acquired by Energy Transfer LP (NYSE: ET). The price is 2.07 ET units per CEQP. That ratio provides a modest premium to Crestwood’s pre-deal trading range. It should provide a low single digit percentage dividend increase to CEQP holders at the close, as well as upside leverage to undervalued Energy Transfer LP. Though we already own ET, we intend at this point to stick with Crestwood through the close in our model portfolio. First, Energy Transfer has been and remains our top midstream pick this year....
Endangered Dividends List
Endangered Dividends List companies are vulnerable for one or more of the following reasons: Cash flow coverage of distributions is inadequate. Elevated debt levels with imminent refinancing needs. Revenue pressure triggered by weakness for at least one key asset. Inability to access the equity market on favorable terms to fund capital spending, forcing management to utilize more internally generated cash flow. Exposure to volatility in commodity margins from either rising or falling prices of raw materials. Aggressive general partners anxious to buy in limited partners’ cash flows at discounted prices. Regulatory reversals. Expiring contracts with little hope for renewals at...
Rounding Up the Q2 Results
We’ve highlighted what’s important in Q2 numbers for several portfolio companies in the past two issues of Energy and Income Advisor. Here’s the roundup of the rest. Black Stone Minerals LP (NYSE: BSM)—Buy<16 The royalty trust posted flat EBITDA in Q2 versus the previous quarter. That result enabled management to hold the dividend stable at 47.5 cents per share, with a coverage ratio of 1.04 times based on a fifth consecutive quarter of distributable cash flow (DCF) over $100 million. Production on the company’s lands was 93 percent royalty and 74 percent natural gas. Overall output was 10.9 percent higher...
Meet Our Editors
Elliott H. Gue
Founder and Chief Analyst
Since earning his bachelor’s and master’s degrees from the University of London, Elliott has dedicated himself to learning the ins and outs of this dynamic sector, scouring trade magazines, attending industry conferences, touring facilities and meeting with management teams.
Roger S. Conrad
Founder and Chief Analyst
Roger S. Conrad has successfully advised income investors since the 1980s, with a nationally acclaimed sector specialty in utilities, telecommunications and energy. He’s a managing partner of Capitalist Times author of Power Hungry, independent director of NYSE-listed Miller Howard High Income Equity Fund and contributing editor to Forbes.com.
