Enable Midstream Partners LP (ENBL +0.00%) is a master limited partnership (MLP) initially formed last May as a joint venture among OGE Energy (OGE 0.84%), CenterPoint Energy (CNP 0.21%), and ArcLight Capital Partners. The partnership owns a network of natural gas gathering, processing, transportation, storage, and fractionation facilities. The MLP largely conducts its business in four geographic production basins: the Anadarko, the Arkoma, the Ark-La-Tex, and the Bakken, which is an emerging area of growth that currently includes an expanding crude oil gathering business.
A compelling investment opportunity
Formed from the midstream assets of CenterPoint Energy and OGE Energy, Enable is a relatively low-risk MLP. It benefits right out of the gate from a large and reliable revenue stream from a fairly well diversified gathering and processing (G&P) and transportation and storage (T&S) footprint in the Central and South U.S. While the company's highly integrated natural gas gathering and processing assets offer an attractive organic growth profile, the transportation assets are exposed to be the best liquids-rich plays in Oklahoma.
The diversified asset base, combined with strong balance sheet, protective contract structures, and a highly experienced management team, makes Enable Midstream Partners a compelling investment opportunity. With assets strategically located between growing gas supply and growing demand in the Southeast from industrial load, power plant load, and LNG projects to the Gulf Coast, Enable's pipelines provide customers access to almost every major market east of the Mississippi. At a 4.6% yield, Enable also offers solid upfront income.
Diversified asset base
As measured by total assets (approx. $11 billion), Enable was the largest entity at IPO in the history of the MLP space. The company went public as a large-scale, well-established midstream provider in the Mid-Continent with a fully integrated and complementary suite of assets. The company has a highly integrated gas gathering, processing and transportation pipeline asset base. Enable owns over 11,000 miles of natural gas gathering pipelines, 12 major gas processing plants, over 10,000 miles of inter- and intrastate natural gas pipelines, and a small but growing Bakken oil gathering system.
Enable has multiple basins and market exposure. The company has over 6.5 million acreage dedications in its four basins. Key exposures in gathering and processing include Anadarko Basin (SCOOP, Mississippian Lime, Granite Wash), Arkoma (Fayetteville) and Ark-la-Tex (Haynesville) as well as the Bakken. In the transportation segment, Enable Midstream has exposure to Southeast, Midwest and Mississippian markets.
While the company's diversified asset base provides stable cash flows, the scale and scope of its large asset base provide growth opportunities in multiple basins and across multiple portions of the midstream value chain.
Stability of cash flows
Enable has a relatively stable cash flow profile. The company generates about 76% of its EBITDA from fee-based contracts with no commodity exposure. Enable's cash flows are backed by fee-based take-or-pay contracts, with 10-15 year contract terms as well as minimum volume commitments.
Breaking down the company's fee-based contracts further, Enable generates 60% of EBITDA from its gathering and processing segment and 40% from its transportation and storage segment. Within the company's segment, more than half of G&P's EBITDA is fee-based, and a significant portion has MVCs, which further limits downside risk. Enable's stable cash flows provide strong support for its base distribution levels.
Top energy customers
Enable Midstream has an established relationship with some of the top energy customers in the U.S. Enable's long and impressive track record of execution and reliability, combined with high-quality service and a large and interconnected footprint should allow the company to retain most of its customer commitments.
Bottom line
Enable generates highly stable cash flows backed by fee-based multi-year contracts, with minimum volume commitments. The partnership's large mix of fee-based cash flows (76%), an under-levered balance sheet, and investment-grade credit metrics all translate into a below-average risk profile in the MLP space.
