Exterran Partners LP (EXLP) is a master limited partnership (or MLP) that provides natural gas compression services in the United States.
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The latest deal between Exterran and Chesapeake (CHK) is in line with Exterran’s strategic initiative to grow its core contract operations business. Once the deal closes, the five-year contract Chesapeake had with BHP Billiton (BHP) will be reassigned to EXLP. The 162 units—with a horsepower of 110,000—which are a part of the transaction, currently provide compression services to BHP Billiton in Arkansas’ Fayetteville Shale.
The transaction is expected to be financed using available credit under EXLP’s revolving credit facility. It will likely close in the 3Q14.
Exterran management added that the transaction will be immediately accretive to EXLP’s distributable cash flow. The management intends to propose to the Board of Exterran’s general partner, Exterran Holdings, to increase the distribution per unit holder by $0.02 on an annualized basis.
If approved, the new distribution would be applicable from the quarter in which the transaction closes. EXLP’s current distribution is $2.15 on an annualized basis, resulting in a yield of 7.5%
Market’s reaction to EXLP’s announcement
Following the news, Exterran stock increased sharply, to $28.14—an increase of 3.1% compared to the previous trading day’s closing price of $27.29. EXH investors—EXH is the general partner for EXLP—also reacted positively, which caused EXH stock to trade higher and close at $44.42—3% higher than the previous market close of $43.11.
This is the second transaction that EXLP has entered into with CHK this year. Earlier this year, EXLP acquired 337 compression units from CHK, which provided gathering services in the Permian and DJ-Niobrara basins as well as the Eagle Ford, Granite Wash, Anadarko, and Haynesville shale plays.
To read more about this previous transaction, refer our Market Realist series Why Chesapeake Energy’s asset sale is positive for all parties.