Why DCP Midstream Partners’ Coverage Ratio Could Increase
DPM has substantial liquidity of $1.25 billion under its revolver credit facility. With a current debt-to-EBITDA ratio of 3.3x and a TTM coverage ratio of 1.1x, DPM has a cushion for raising fresh capital.
DPM received a “buy” rating from 53.3% of the analysts, while 13.3% rated it as “sell.” The remaining 33.3% of the analysts recommended a “hold.”
DPM generates 60% of its earnings from fee-based contracts and 35% from PoP contracts. Under its PoP contracts, these earnings are linked to movement in energy prices.
NGL Logistics was DPM’s top-performing segment in 1Q15. The segment’s adjusted EBITDA increased by 129.4% in 1Q15 QoQ, driven by an increase in NGL pipeline throughput volumes.
The increase in DPM’s EBITDA was driven by strong operating performance from its NGL Logistics and Wholesale Propane Logistics segments.
Since November 2014, DCP Midstream Partners’ stock has fallen by ~25%. Flat distribution growth and falling natural gas prices may impact its stock.
Increased natural gas consumption in 2015 is supposed to come from increased demand from the industrial and electric power sectors.
The EIA remains bullish about natural gas production in 2015. Continued production growth will keep natural gas prices (UNG) relatively low.
The United States Natural Gas Fund (UNG), an ETF that tracks prompt natural gas futures. Shares of UNG trade on the NYSE like company stock. UNG shares declined by 2% this week.
Natural gas prices plunged this week after increasing to their highest levels in four months the week before. Prices closed at $2.949 per MMBtu on Thursday, May 21.
With the 92 Bcf build last week, natural gas inventories as of May 15 were 59% higher than last year’s levels, but 1.7% lower than the five-year average.
Bearish traders could see key support at $2.50 per MMBtu. Natural gas prices tested this level in April 2015. Oversupply factors will push natural gas prices lower.
Increasing inventories are negative for natural gas prices. US natural gas rigs rose marginally by two to 223 for the week ending May 15.
June natural gas futures increased by 1.17% on Thursday and settled at $2.94 per MMBtu on May 21. Natural gas prices increased for the first time in last four days.
When distillate production decreases, distillate inventories fall. The opposite is true when the demand for distillates decreases.
The EIA, in its Weekly Petroleum Status Report released on Wednesday, said that distillate stocks decreased to ~127.7 MMbbls in the week ending May 15.
Gasoline production decreased from ~9.69 MMbpd in the week ending May 8 to ~9.65 MMbpd in the week ended May 15.
The EIA reported that gasoline inventories decreased by 2.8 MMbbls to ~223.9 MMbbls in the week ending May 15. Analysts expected inventories to increase.
The EIA reported that Cushing inventories decreased by 241,000 barrels to 60.4 MMbbls in the week ending May 15. The stocks at Cushing had been rising since November 2014.
In its weekly report on May 20, the EIA reported that US crude oil refinery inputs averaged over 16.2 MMbpd during the week ending May 15.
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