Crestwood Equity Partners (CEQP) has made a lot of deals over the past few years. Each one has helped increase its focus on its core regions and improve its financial profile so that the company can build long-term value for investors.
The master limited partnership's (MLP) appetite for wheeling and dealing is as strong as ever. It recently unveiled a trio of transactions that accomplish those strategic goals. That's putting its 9%-yielding distribution on an even stronger foundation, increasing its attraction to investors seeking a sustainable passive-income stream.
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Coring up the portfolio
Crestwood Equity Partners announced a series of transactions that will bolster its position in the oil-rich Delaware Basin, while exiting its legacy position in the Barnett Shale. The MLP will:
- Acquire Sendero Midstream Partners for $600 million in cash
- Purchase the remaining 50% interest in its Crestwood Permian Basin Holdings joint venture from its partner First Reserve for $320 million in common units plus the assumption of debt
- Sell its Barnett Shale assets to EnLink Midstream (ENLC 0.37%) for $275 million in cash
The transactions will more than double Crestwood's natural gas processing capabilities in the Delaware Basin. That will significantly increase Crestwood's scale in that leading basin, which has the best economics and highest drilling activity in the country.
Sendero's assets complement Crestwood's existing position, enabling the MLP to capture cost and commercial synergies. Its combined position has significant excess capacity, providing Crestwood with embedded growth potential as producers expand in the region.
Meanwhile, the transactions will simplify the company's operations by consolidating a joint venture while facilitating the exit of a non-core region via the Barnett sale to EnLink, which has significant operations in that area. Further, Crestwood will maintain its strong balance sheet by receiving cash in that sale and issuing equity to First Reserve.
While its leverage ratio will rise to 3.8 times debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) following the close of all three transactions, Crestwood sees that number returning below 3.5 times next year. That will keep its distribution on a rock-solid foundation.
Getting better one deal at a time
This series of transactions is the latest step by Crestwood to create a leading gathering and processing company focused on the best production basins in the country. It comes just a few months after Crestwood closed its acquisition of fellow MLP Oasis Midstream Partners, boosting its position in the Williston and Delaware Basins. That $1.8 billion deal enhanced its cash flow, scale, and financial profile, enabling Crestwood to increase its high-yielding distribution by 5%.
Meanwhile, last year, Crestwood and its partner sold their Stagecoach Gas Services joint venture to Kinder Morgan for $1.195 billion in cash. The MLP also acquired its general partner from First Reserve last year.
Each one of these deals accomplished one or more important strategic goals. They enhanced the company's focus on its core assets, improved its financial profile, and reduced its corporate complexity. Because of that, Crestwood has been able to continue making deals that should grow value for investors over the long term.
Since Crestwood will still have a strong financial profile after making the Sendero, First Reserve, and EnLink deals, it can continue its gathering and processing consolidation strategy if additional opportunities emerge. The MLP would like to keep increasing its scale and relevance in the Williston, Delaware, and Powder River Basins if it can find deals that maintain its strong balance sheet and build long-term value for investors.
Enhancing its already rock-solid income stream
Crestwood Equity Partners expects to generate enough cash this year to cover its 9%-yielding distribution by at least two times. That will leave plenty of money to finance expansion projects while maintaining a strong balance sheet.
Meanwhile, its latest trio of deals will further improve that cash flow profile, putting its payout on an even firmer foundation. Because of that, it continues to look like an attractive option for investors seeking a big-time passive-income stream.
