This dividend with a yield of 9% is reinforced thanks to the agreement
Crestwood Equity Partners (CEQP 0.55%) has done a lot of business in the past few years. Each has helped to focus more on its core regions and improve its financial profile so that the company can create long-term value for investors.
The Master Limited Partnership’s (MLP) appetite for rotation and trading is stronger than ever. He recently unveiled a trio of deals that accomplish these strategic goals. This puts its 9% yield distribution on an even stronger footing, increasing its appeal to investors looking for a passive income flow.
Crestwood Equity Partners has announced a series of transactions that will strengthen its position in the oil-rich Delaware Basin, while exiting its legacy position in the Barnett Shale. The MLP:
- Acquire Sendero Midstream Partners for $600 million in cash
- Purchase the remaining 50% stake in its Crestwood Permian Basin Holdings joint venture from its partner First Reserve for $320 million of common units plus debt assumption
- Sell its Barnett Shale assets to Intermediate EnLink (ENLC 0.64%) for $275 million in cash
The transactions will more than double Crestwood’s natural gas processing capabilities in the Delaware Basin. This will dramatically increase Crestwood’s scale in this premier basin, which has the best economy and highest drilling activity in the country.
Sendero’s assets complement Crestwood’s existing position, allowing MLP to capture cost and commercial synergies. Its combined position has significant excess capacity, providing Crestwood with built-in growth potential as growers expand into the region.
Meanwhile, the transactions will simplify the company’s operations by consolidating a joint venture while facilitating exit from a non-strategic region through the sale of Barnett to EnLink, which has significant operations in that region. Additionally, Crestwood will maintain its strong balance sheet by receiving cash from this sale and issuing stock to First Reserve.
While its debt-to-equity ratio will rise to 3.8 times debt to earnings before interest, taxes, depreciation and amortization (EBITDA) after all three deals close, Crestwood sees that number falling back below 3.5 times next year. This will keep his cast on a rock solid footing.
Improving one case at a time
This series of transactions is Crestwood’s latest step in building a premier collection and processing business focused on the country’s best production basins. This comes just months after Crestwood completed its acquisition of fellow MLP Oasis Midstream Partners, strengthening its position in the Williston and Delaware basins. This $1.8 billion transaction improved its cash flow, scale and financial profile, allowing Crestwood to increase its high yield 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 First Reserve last year.
Each of these transactions achieved one or more important strategic objectives. They have strengthened the company’s focus on its core assets, improved its financial profile and reduced its business complexity. As a result, Crestwood has been able to continue closing deals that should add value to long-term investors.
Since Crestwood will still have a strong financial profile after completing the Sendero, First Reserve and EnLink deals, it can continue its collection and processing consolidation strategy if new opportunities arise. MLP would like to continue to grow its reach and relevance in the Williston, Delaware and Powder River Basins if it can find deals that maintain its strong balance sheet and create long-term value for investors.
Improve its already rock-solid revenue stream
Crestwood Equity Partners waits Generate enough cash this year to cover at least twice its 9% return distribution. This will leave plenty of cash to fund expansion projects while maintaining a strong balance sheet.
Meanwhile, his latest trio of deals will further improve that cash flow profile, putting his payout on an even stronger footing. For this reason, it continues to look like an attractive option for investors looking for a large passive income stream.