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3 Small MLPs Eyeing Big Growth
Posted by: Sarfaraz A. Khan (IP Logged)
Date: April 11, 2014 11:21AM
The head of energy and infrastructure at Goldman Sachs has recently identified Lehigh Gas Partners (LGP), EQT Midstream Partners (EQM) and Oiltanking Partners (OILT) as three small master limited partnerships, or MLPs, with strong future growth prospects.
Over the last 52 weeks, the Alerian MLP ETF (AMLP) has risen by just 1.8% while Leigh Gas Partners, EQT Midstream and Oiltanking Partners have climbed 19%, 87% and 56% respectively.
Despite the rally, the three could continue growing on the back of significant top and bottom line growth.
Leigh Gas Partners
Allentown, Penn.-based Leigh Gas Partners has a market cap of less than $500 million and was listed in October, 2012. The company is a distributor of branded petroleum products and operates through a network of 800 gas stations in 14 states.
Since the business started operations in 1992, it has generated revenues from the wholesale distribution of fuels as well as through real estate leases. Following its initial public offering, the company also started retail operations. By the end of 2013, Leigh Gas had become one of the ten biggest independent distributors in the U.S., in terms of volume, for the oil giants Exxon Mobil (XOM), BP (BP) and Motiva.
Since its IPO, Leigh Gas Partners’ units have risen by 26.5% while it has increased its annual distribution by 17% to $2.05 per unit. The company’s revenues have grown by more than six times from 2012 to $1.93 billion by the end of 2013 on the back of five major acquisitions. The company has spent $143 million to acquire 123 fee and leasehold sites. Meanwhile the company went from making a loss of $1.3 million in 2012 to a profit of $18 million in 2013.
The company could take this momentum forward with more acquisitions in the future. The favorable market environment, where major oil companies have been selling their distribution assets, will create plenty of opportunities for inorganic growth.
The current fiscal year’s results will receive a boost from three major acquisitions (Rogers, Rocky Top and Manchester). Moreover, the company has refinanced its credit facility while its long-term debt has dropped by 5.6% from 2012 to $173 million by the end of 2013. Therefore, the company is expecting a decline in interest expenses in 2014.
EQT Midstream Partners
EQT Midstream, with a market cap of $3.4 billion, was formed by EQT Corporation (EQT) to own and operate the latter’s midstream assets at the Appalachian Basin. The partnership provides its services to EQT Corporation as well as other companies.
The MLP’s strength lies in its strong asset base, particularly its 700-mile interstate pipeline system and the 1,600-mile low-pressure gathering lines, as well as its close relationship with EQT Corporation, which is one of the largest natural gas producers at the Appalachian Basin.
EQT Midstream has recently completed the $30 million Low Pressure East expansion project that will increase the partnership’s transmission capacity by 150 BBtu. The company has also recently entered into contracts with Antero Resources and Range Resources to provide gathering, compression and transportation services. The agreements will not only enhance EQT Midstream’s revenue streams, the partnership has also agreed to invest more than $100 million to expand its transmission and gathering infrastructure assets.
Historically, EQT Corporation has accounted for more 77% of the EQT Midstream’s revenues over the last 3 years. However, with the new contracts, the partnership will diversify its revenue base.
In 2013, EQT Midstream’s revenues increased by 35.8% to $185.8 million while its operating income climbed 52% to $114 million. The company is planning to take this growth momentum forward. In 2014, EQT Midstream has forecast a 42.2% to $46.4% increase in adjusted earnings before interest, tax, depreciation and amortization.
Like EQT Midstream, this little known $3.1 billion MLP, which provides terminaling, transportation and storage services to other energy companies, is also backed by a powerful parent. Oiltanking Partners was formed by Germany’s Oiltanking Group, the world’s second biggest independent tank storage provider.
Oiltanking Partners operates through two massive facilities at Houston and Beaumont with deep-water ship and barge docks and 22 million barrels of active storage capacity. Virtually all of its capacity is under contract. The two facilities have access to two dozen plants at the Gulf Coast and Cushing, while the Houston facility also has export capabilities.
The Houston facility is one of the biggest third party terminaling facilities at the Houston ship channel.
Oiltanking Partners has consistently grown its top and bottom line over the last five years. In 2013, the company’s revenues and net income climbed 55.7% and 86.9% to $210 million and $117 million respectively.
The growth has come on the back of new storage capacity and a revamp of the existing capacity. With some mega projects under development, Oiltanking Partner’s growth story is far from over.
The company is currently working on a massive $275 million expansion project through which the company will increase its storage capacity by 32% within the next two years.
The company is also spending $98 million to develop two new crude oil pipelines as the company aims to connect with refining plants in Texas and Louisiana and the highly anticipated Keystone XK pipeline.
Meanwhile, the company is also partnering with Enterprise Product Partners to further strengthen its docking capabilities by spending $44 million on dock expansion.
Disclosure: I have no positions in any of the stocks mentioned in this article. This article reflects my opinions and does not constitute investment advice.
Stocks Discussed: LGP, EQM, OILT, XOM, BP, EQT, AMLP,