|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Growth Projects Should Be Immediately Accretive to Cash Flow for DCP Midstream Partners LP
Posted by: Roger Conrad (IP Logged)
Date: August 1, 2012 07:08PM
Rising production from the nation’s emerging shale oil and gas plays continues to drive demand for expanded takeaway capacity. Thus far, midstream master limited partnerships (MLPs) have pursued smart growth by inking contracts and commitments from major customers prior to building new assets and financing these projects with inexpensive equity and debt capital. This conservative approach ensures solid returns on cash flow and has fueled robust distribution growth in recent years.
Bearish investors worry that the upsurge in domestic energy production, coupled with a recession in Europe and a weak global economy, will constrain commodity prices. In such an environment, producers would likely scale back drilling activity, weighing on demand for midstream assets in certain basins.
However, I’ve yet to see signs that this scenario is playing out. For example, Enterprise Products Partners on June 20 announced plans to construct one of the world’s largest propane dehydrogenation units on the Texas Gulf Coast. The new facility is supported by long-term, fee-based contracts executed with companies that have investment-grade credit ratings. Management expects the plant to come onstream in the third quarter of 2015.
Units of DCP Midstream Partners LP (DPM) have given up about 7.9 percent since May 1, reflecting concerns about the recent decline in NGL prices. Nevertheless, management has pursued a number of growth opportunities that should boost the firm’s distributable cash flow and offset the firm’s exposure to energy prices.
Not only has DCP Midstream Partners expanded its gas processing capacity in east Texas that serves the Eagle Ford Shale, but the firm has also formed a joint venture with Anadarko Petroleum Corp (APC) and Enterprise Products Partners to build a 435-mile NGLs pipeline running from Colorado to Texas.
The publicly traded partnership’s general partner also recently dropped down minority interests in two non-operated fractionation facilities in Mont Belvieu, Texas, for $200 million. Management expects the deal to be immediately accretive to cash flow and reaffirmed the goal of growing the firm’s distribution by 6 percent to 8 percent in 2012. For more MLP picks, check out my free report, The Top MLPs to Own Now.
Stocks Discussed: DPM,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.