Boardwalk Pipeline Partners, LP (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.


Discounted Cash Flow

Distribution Paid

Coverage Ratio

Q1 2013



1.21 times

Q2 2013



1.10 times

Q3 2013



0.90 times

Q4 2013



0.98 times

Q1 2014



6.52 times

Source: Company press releases, 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



Distribution Paid






Source: Company filings, 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.