Noble Midstream Partners (NBLX +0.00%) burst on the scene in 2017, delivering stellar outperformance in its rookie year as a public company. Driving that surge was the company's ability to capture several needle-moving opportunities, which positioned it for fast-paced growth for years to come. The master limited partnership (MLP) has continued enhancing its growth prospects this year, which puts it in a position to grow cash flow at an even faster pace.
A sector-leading outlook
Noble Midstream Partners has one of the brightest forecasts in the midstream sector. The MLP currently expects to grow its cash flow at a high enough rate to support 20% annual distribution growth through 2022. Furthermore, the company anticipates that it can deliver that fast-paced growth while maintaining a strong financial profile. In the company's view, it can keep its leverage ratio at less than 2.0 times debt-to-EBITDA (half the level of most peers) and maintain a distribution coverage ratio of more than 1.3, which is better than the 1.2 average of its peer group.
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Fueling that forecast is the company's ability to expand its midstream footprint to support the growth of its customers, including its parent Noble Energy (NBL +0.00%). The company operates several gathering systems in both the Permian Basin and DJ Basin that it expects to continue expanding as customers drill more wells.
In addition, the company's Advantage Pipeline joint venture (JV) with Plains All American Pipeline (PAA 0.32%) has been exceeding expectations since it began last year. Noble Midstream and Plains All American might need to expand that pipeline even further.
In the company's view, anticipated customer volume growth on those systems alone -- including Noble Energy's plan to boost its production by 20% annually through 2020 -- should give it more than enough fuel to increase its 5.3%-yielding payout at a 20% annual rate through 2022.
Adding another new growth engine
However, while Noble Midstream already has lined up enough fuel for one of the best dividend-growth forecasts among MLPs, that hasn't stopped the company from adding even more this year. It recently did that after signing a letter of intent with private equity-backed Salt Creek Midstream, to form a JV that will develop a new oil pipeline and gathering system in the Delaware Basin side of the Permian. The companies hope to build a 95-mile pipeline that will support new wells drilled by Noble Energy and five other producers. The new pipeline would feed into the Advantage Pipeline, which will boost the cash flow of the company's JV with Plains All American.
In addition to providing Noble Midstream with another growth platform, this JV with Salt Creek has three additional benefits. First, it will expand the company's in-basin transportation system, which enables it to make money a little farther downstream than its current focus of gathering hydrocarbons and water at the wellhead. Second, it continues to diversify the company's revenue away from Noble Energy, since about two-thirds of the acreage supporting this system is with third-party customers. Finally, it takes the company another step closer to its aim of getting 50% of its earnings from the Permian Basin by 2020.
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There's more fuel in reserve
In addition to all the growth Noble Midstream has already secured, it has several other opportunities in the pipeline that could add even more fuel to its growth forecast. For starters, the company holds the option to buy a 15% stake in the EPIC NGL (natural gas liquids) pipeline, which is currently under construction. The 700-mile pipeline would move NGLs from the Permian to a fractionation hub in Corpus Christi, Texas, which would separate them into ethane, butane, and propane.
In addition, Noble Energy holds an option to buy a 30% stake in the EPIC Crude pipeline, which would move oil more than 1,100 miles from the Permian to Corpus Christi. Noble Energy could assign that option to its MLP, or exercise it and eventually sell it to Noble Midstream.
On top of those two pipelines, Noble Energy still owns interests in several gathering systems that it could eventually drop down to its MLP.
These opportunities suggest that Noble Midstream has significant upside beyond its current outlook, which is already one of the best in its class.
All that growth and income for a better price
Noble Midstream already had more than enough fuel to grow its high-yielding distribution at 20% annually for the next several years. That didn't stop it from adding more fuel, which could allow it to continue growing at that high rate for many more years.
However, even though its growth prospects have improved this year, the company has lost nearly 20% of its value. So investors can lock in a higher yield and an even larger growth pipeline for a lower price, making Noble Midstream an increasingly compelling option to consider.
