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Understanding Rice Midstream’s Cash Flow Measures

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Distributable cash flows

Rice Midstream Partners’ (RMP) distributable cash flow for 1Q16 was $38.4 million, as compared to $10.9 million in the first quarter of 2015—a YoY (year-over-year) increase of 252.3%. The increase in distributable cash flows drove RMP’s coverage ratio, which stood at 2.6x in 1Q16.

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Distributions

RMP declared a distribution of $0.21 per unit for 1Q16. This represents a 12.0% YoY increase over 1Q15 and a 6.9% sequential increase over 4Q15. The partnership expects to grow its distribution by 20% YoY in 2016 while maintaining a distribution coverage in the range of 1.3x–1.5x.

Based on its recent distribution, the partnership is currently trading at a distribution yield of 4.9%. Antero Midstream Partners (AM) and EQT Midstream Partners (EQM), which have higher distribution guidance than RMP, are trading at distribution yields of 4.0% and 4.3%, respectively.

Capital expenditure

Rice Midstream’s capital expenditure for the first quarter of 2016 was ~$36.2 million. The sudden spike in RMP’s 4Q15 capital expenditure reflects the acquisition of Rice Energy’s (RICE) water business. The partnership expects to spend around $150 million on growth projects in 2016. This includes $140 million on gas gathering and compression and $10 million on water services.

According to RMP’s 1Q16 earnings call, “On the compression side, we expect our field-wide compression to be placed in the service in mid-­2016 to compress a majority of our gathering volumes, which will add significant value to our revenue stream.”

In the next part, we’ll take a closer look at dropdown opportunities.

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