What Will Boardwalk Pipeline Partners, LP Do With Its Extra Cash?

How much extra cash does Boardwalk have to inject back into its business, and how does management plan to use it?

May 30, 2014 at 11:08AM

Boardwalk Pipeline Partners, LP (NYSE:BWP) made news in a big way this past February when it cut its distribution from $0.53 to a measly $0.10 per unit. Management decided the only way to keep the ailing partnership alive was to reinvest more money back into the business, money that was at the time being doled out in the form of distributions. Today, we're taking a closer look at Boardwalk Pipeline Partners' distribution and how the painful cut could, in theory, yield a brighter future.

Distribution coverage
Boardwalk's distribution story is a sad one. Let's take a quick look at its history before addressing management's plan for the future.

Quarter

Discounted Cash Flow

Distribution Paid

Coverage Ratio

Q1 2013

$154.90

$128.20

1.21 times

Q2 2013

$148.70

$135.50

1.10 times

Q3 2013

$116.60

$129.00

0.90 times

Q4 2013

$138.90

$141.10

0.98 times

Q1 2014

$161.80

$24.80

6.52 times

Source: Company press releases, MLPData.com. Dollar figures in millions.

The above chart needs to be put into proper context -- that is, that Boardwalk held its distribution flat for seven straight quarters and still couldn't cover its payouts in Q3 and Q4 of 2013. That's why it slashed it 80% this past February.

Now that its distribution coverage is extremely high -- 6.52 times coverage is unheard of in this space -- management can use that money to repair its broken business. The question now is: Exactly how much extra capital does management have to work with each quarter, and what are they doing with it?

Extra cash
To get a sense of the extra cash management will have on hand each quarter, we can simply compare the first quarter of this year to the first quarter of last year:

 

Q1 2013

Q1 2014

Discounted Cash Flow

$155

$161.80

Distribution Paid

$128.20

$24.80

Difference

$26.80

$137.00

Source: Company filings, MLPData.com. Dollar figures in millions.

The massive distribution cut has already given the partnership more than $100 million to work with in the first quarter alone.

But this is relatively meaningless without knowing what management expects going forward for both the distribution and distributable cash flow. In February, Boardwalk's leadership issued annual distributable cash flow guidance of $400 million with a flat $0.10 quarterly distribution. Management reiterated those targets in early May, despite a strong first quarter. That means that after the distributions have been paid, there will be roughly $300 million available to inject back into the partnership.

Project pipeline
Flush with cash, management is seeking to capitalize on four key opportunities in the energy space:

  • Liquefied natural gas exports
  • Increased industrial natural gas consumption
  • Increased natural gas demand at power plants
  • Natural gas liquid services

To date, the most immediate project scheduled to come to fruition is the Southeast Market Expansion project. It aims to bring natural gas to a number of power plants on the Gulf Coast using excess capacity freed up from the partnership's expiring contracts. All told, Boardwalk has 550 million cubic feet per day contracted for 10 years, beginning in the fourth quarter of this year when the completed project comes into service.

Natural gas-fired power plants are increasingly popular in the American southeast because the long distances from American coal producers -- particularly the high-quality coal of the Powder River Basin -- make natural gas the cheaper option for utilities, especially when one factors in the inevitable costs of increasing pollution regulations on coal power plants. Williams Partners (NYSE:WPZ), for example, is also ramping up the capacity on its 10,000-mile Transco system for the same purpose. Energy consultancy Wood Mackenzie estimates that natural gas-fired power plants are expected to ramp up demand by 2.2 billion cubic feet per day by 2020.

Boardwalk's Southeast Market Expansion is a solid project that not only repurposes an existing underused asset but does so with the support of 10-year contracts. We will have to wait and see if management can execute on time and on budget, turning this strong idea into strong cash flows, but, in theory, it is putting its new cash to good use here.

Bottom line
There are investors out there who simply will not bother giving Boardwalk Pipeline Partners the time of day, and that's fine. There are certainly more reliable options available. But then there are investors who believe this is a turnaround story with massive upside. It's important to temper that bullishness with reason and let management prove it can get a proper turnaround started before giving them your money.

Three more MLP picks
Master limited partnerships are complicated beasts, but they can be tamed for your portfolio with a little guidance. The Motley Fool is offering a look at three reliable MLPs using their IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Aimee Duffy has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers