AM’s commodity price exposure
The earnings of midstream companies, including large ones such as Kinder Morgan (KMI) and Energy Transfer Partners (ETP) and small ones such as Antero Midstream Partners (AM) and Crestwood Equity Partners (CEQP), are believed to not have much direct commodity price exposure.
The correlation between AM’s stock price and crude oil’s (USO) price resulted in a correlation coefficient of 0.80x from the time AM began trading in November 2014 until 2015. Natural gas (UNG) and AM had a correlation coefficient of 0.59x for the same period.
The correlations between AM and the two commodities have increased marginally to 0.60x and 0.81x, respectively, in the last year, during the period of the rout in energy prices. A correlation coefficient close to 1x could indicate a strong relation between two variables.
AM’s indirect commodity exposure
Midstream companies are indirectly exposed to commodity prices through their production levels. If crude oil and natural gas prices continue to stay low, upstream producers could cut production or even go bankrupt, which could result in lower throughput volumes, lower earnings, and higher counterparty risk.
100% of Antero Midstream’s gathering and compression and water delivery assets are tied to long-term fixed-fee contracts. However, in the current low price environment, even MLPs’ contracts may not be safe. For more details, read Sabine Ruling: Why Did MLPs Fall 6.1% on March 8?
Antero Resources (AR) is AM’s largest customer. According to the 4Q15 earnings call, “Antero was one of only five public BAA/BA rating E&P companies that received affirmed ratings from Moody’s during its recent thorough review and one of only two public BA rated E&P companies that received affirmed ratings.”
For more company overviews and indicator analyses on master limited partnerships, you can refer to Market Realist’s Master Limited Partnerships page.