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USA Compression Partners Offers a 14% Yield: What Are the Risks?


Nov. 20 2020, Updated 5:02 p.m. ET

Compression services MLPs

Two compression services MLPs, USA Compression Partners (USAC) and CSI Compressco (CCLP), are on our top ten list of highest-yielding MLPs. USA Compression Partners and CSI Compressco primarily provide natural gas compression services. The process involves compressing natural gas to a smaller volume and a higher pressure, a necessary part of the gas production and transportation process.

The demand for compression services is linked to the level of drilling activity. With reduced drilling activity and lower energy commodity prices, compression services MLPs had a challenging time over the last couple of years. However, there are various long-term drivers for natural gas demand including increasing demand from the power sector, demand from Mexico, and export demand for LNG (liquefied natural gas). The compression services MLPs will likely benefit from increased drilling activity driven by higher demand.

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Eric Long, USA Compression’s president and CEO, said in the company’s 2Q17 earnings release, “As our customer base continues to adapt to the current and future commodity price environment, we have better future visibility and are seeing new demand for our compression services reaching well into 2018.”


As the above chart shows, CSI Compressco cut its distributions by 25% in the fourth quarter of 2015 and again by 50% in the first quarter of 2017. Despite these cuts, CCLP is now trading at a high yield of ~16%. This likely reflects CCLP’s declining cash flows, low coverage, and high leverage. Its coverage ratio stood at 0.85x at the end of 2Q17.

USA Compression Partners managed to keep its distributions flat over the same period. USAC’s coverage ratio for 2Q17 stood at 0.81x. Its general partner, USA Compression Holdings, owns ~39.8% of USAC’s limited partner interests. In 2Q17, USA Compression Holdings elected to reinvest 50% of distribution with respect to its units under USAC’s DRIP (Distribution Reinvestment Plan). Considering the reinvested distributions, USAC’s coverage ratio for the quarter stood at 1.03x.

Learn more about compression service MLP performance and drivers in Compression Services MLPs: Where Are USAC, APLP, CCLP Headed?


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