All four of the peers we’re analyzing in this series—DCP Midstream (DCP), Western Gas Partners (WES), OKEOK (OKE), and Targa Resource Corporation (TRGP)—have leverage ratios within or below the industry standard of 4.0x to 4.5x. WES had the lowest leverage ratio, at 3.2x as of December 31, 2017.
At the same time, OKE, DCP, and TRGP had a net-to-debt EBITDA ratio of 4.3x. OKE, which has the highest capital spending plans for 2018 among the peers, might not see much of an increase in its leverage in 2018, considering its impressive distribution coverage ratio and strong expected earnings growth this year. On the other hand, TRGP might see an increase in leverage by the end of this year, considering its plans to fund the majority of its 2018 capex from debt.
DCP Midstream looks to be in a tight spot as far as the partnership’s leverage position is concerned. Why? Its strong capital spending plans for 2018, low distribution coverage, and relatively higher commodity price exposure.