Could NGL Energy Resume Distribution Growth in Three Quarters?



NGL Energy’s distributions

NGL Energy Partners (NGL) recently decided to cut its distribution by 39%. Based on the distribution cut, NGL Energy declared a distribution of $0.39 for fiscal 4Q16. The partnership expects distribution to remain the same for the next three quarters. However, the resumption of NGL’s distribution growth would depend on the successful completion of important projects such as the Grand Mesa project and a reduction in leverage and crude oil price volatility.

Crestwood Equity Partners (CEQP), Kinder Morgan (KMI), Boardwalk Pipeline Partners (BWP), and Teekay LNG Partners (TGP) are other midstream companies that have cut their distribution to reduce their leverage.

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NGL Energy’s distributable cash flows

NGL Energy Partners’ fiscal 4Q16 distributable cash flow fell by 16.5% YoY (year-over-year), resulting in a YoY decline in its fiscal 4Q16 coverage ratio. However, the distribution coverage ratio was still above 1.0 due to distribution cuts. The partnership expects fiscal 2017’s distributable cash flow to be $350 million, resulting in a coverage ratio of 2.0x.

NGL Energy’s capital expenditure

NGL Energy expects its 2016 growth capex to lie between $200 million and $300 million. This includes a $110 investment in the Grand Mesa project. It’s an important project for NGL Energy. According to a recent press release, “the Partnership currently expects year one EBITDA[1. earnings before interest, tax, depreciation, and amortization] related to this project to be approximately $120 million and year two EBITDA to be approximately $150 million. The average contract term on the pipeline is approximately nine years and all contracts are fee-based with minimum volume commitments.”


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