USA Compression Partners LP (USAC) stands to benefit from the growing proportion of U.S. natural-gas output that comes from shale basins. The MLP leases specialized compressors to midstream operators to force natural gas from local gathering systems into the pipeline network.
Demand for gas-lift compression also continues to grow. This technology artificially increases pressure in oil wells to enhance production.
Since its initial public offering in January 2013, USA Compression Partners has moved aggressively to meet demand, investing heavily in new horsepower and acquiring gas-lift specialist S&R Compression for $187 million.
These investments have translated into a 67% increase in distributable cash flow from year-ago levels. However, USA Compression Partners’ unit count has also increased by 50% over the same period, reflecting its sponsors’ participation in a distribution reinvestment program and equity issuance to fund the expansion of its fleet.
Nevertheless, the MLP raised its distribution by 2% sequentially and 13.6% year-over-year. When you factor in the units on which USA Compression Partners’ sponsors have elected to reinvest their distributions, the partnership generated enough cash flow to cover 94% of its higher payout. Without these units, the coverage ratio increases to 242%. USA Compression Partners LP continues to rate a buy up to $27 per unit.
Elliott Gue and Roger Conrad, Energy & Income Advisor, www.energyandincomeadvisor.com, 888-960-2759, August 29, 2014
