Midstream MLPs for high yield

[dan_s]

See our profile on MWE under the MLP Tab. MWE will benefit from Gulfport's success in the Utica Shale. - dan

Enbridge Energy Partners LP (NYSE: EEP): The MLP raised its second-quarter distribution by 2.1 percent sequentially, reflecting management's confidence in the firm's slate of growth projects and its outlook for future cash flows. Nevertheless, in a conference call to discuss second-quarter results, Enbridge Energy Partners' management team acknowledged that depressed NGL prices could mean that the MLP's cash flow will fall short of its distribution in coming quarters. The firm also emphasized the difficulty hedging against price weakness at the Conway hub, aside from shifting volumes to Mont Belvieu. Management also lowered the estimated earnings before interest, taxes, depreciation and amortization (EBITDA) for its Ajax gas-processing system that will serve the Granite Wash and is slated to come onstream in the first quarter of 2013.

Enterprise Products Partners LP (NYSE: EPD): The blue-chip MLP posted impressive second-quarter results, as new assets boosted overall throughput on the firm's midstream infrastructure and offset exposure to weak NGL prices. Management noted that equity NGL volumes declined 20 percent from a year ago, while fee-based processing throughput increased 15 percent. Enterprise Products Partners attributed weak ethane prices to planned and unplanned plant outages in the petrochemical industry, the majority of which were completed in early July. The MLP's gas-processing facilities in the Rockies rejected ethane during the quarter, as the firm was able to purchase favorably priced ethane volumes at the Conway hub and transport the NGL to Mont Belvieu. Enterprise Products Partners' strong quarter demonstrates the appeal of a diversified asset base in a volatile environment.

MarkWest Energy Partners LP (NYSE: MWE): Management sought to assuage concerns about weak NGL prices, noting that the petrochemical industry plans to construct up to five world-scale ethane crackers over the next four years and that 175,000 barrels per day of additional propane export capacity will come onstream in 2013. If MarkWest Energy Partners achieves the low end of its full-year guidance for distributable cash flow, the MLP will cover its distribution by an estimated 1.13 times. This forecast assumes that the number of outstanding common units remains stable and that NGL prices remain depressed. Management also indicated that the firm was weighing the possibility of adding product-specific NGL hedges to replace some oil hedges.

[dan_s]

Penn Virginia Resource Partners LP (NYSE: PVR): Penn Virginia Resource Partners' midstream operations in the Mid-Continent region, which posted a 27.4 percent decline in adjusted earnings EBITDA during the second quarter, also faced their fair share of headwinds. Although throughput on the MLP's gathering and processing system surged to 453 million cubic feet per day from 422 million cubic feet per day a year ago, this increase in volumes failed to offset the massive decline in NGL prices at the hub in Conway, Kan. Penn Virginia Resource Partners also has some exposure to NGL prices in this region, as keep-whole agreements account for about 15 percent to 20 percent of throughput in a given quarter. Meanwhile, percent-of-proceeds contracts account for about 60 percent of processed volumes. With volumes and pricing Penn Virginia Resource Partners' coal segment likely to remain under pressure in 2013, management has pinned its hopes on the firm's eastern midstream segment, which accounted for 31 percent of total adjusted EBITDA in the second quarter. Management has noted that the expansion of existing infrastructure in the Marcellus Shale and the integration of assets acquired from Chief E&D holdings will increase the percentage of fee-based contracts to 80 percent of nameplate capacity.

Plains All American Pipeline LP (NYSE: PAA): Like Enterprise Products Partners, this blue-chip MLP enjoyed a strong second quarter, fueled by a diversified asset base and a number of growth projects. Management expects the logistics division to post sequentially lower adjusted profit in the third quarter because of the decline in NGL prices and its implications for margins. At the same time, management emphasized that these headwinds would likely dissipate in the first quarter of 2013.

Targa Resources Partners LP (NYSE: NGLS): Management's current full-year guidance calls for the MLP to generate more than enough cash flow to cover its distribution. This forecast is based on a conservative set of commodity price assumptions: $80 per barrel of oil, $2.50 per million British thermal units of natural gas and $0.75 per gallon of NGLs, which includes $0.30 per gallon of ethane and $0.80 per gallon of propane. Both ethane and propane prices have rebounded beyond these thresholds, but management has emphasized that the firm would still be able to grow its distribution in this environment.