Canada Markets closed

ACMP’s acquisition of midstream compression assets and financing

Avik Chowdhury

Analyzing ACMP's first quarter earnings and key growth drivers (Part 7 of 8)

(Continued from Part 6)

Capitalizing on growth through acquisitions

ACMP has capitalized on growth through acquisitions as well. In February 2014, ACMP made an agreement with MidCon Compression, L.L.C., a wholly owned subsidiary of Chesapeake Energy Corporation (CHK) to acquire certain midstream compression assets for $160 million. The planned acquisition adds natural gas compression assets in the Utica Shale and Marcellus Shale regions. This transaction is valued at an ~8x forward EBITDA multiple. The compression portfolio includes ~100 units with a combined capacity of ~200,000 HP. The acquisition signals the exit of CHK from compression business and marks a shift in the strategic mix of internal and outsourced compression services for ACMP.

Mike Stice, the CEO of ACMP, said in the conference call of 1Q14 earnings, “Access Compression now owns and services the compressors we purchased and, more importantly, we added a strong group of 34 highly qualified employees into ACMP to operate this new compression business. Our ownership of these assets fits extremely well with our business model, as it gives us control of the key cost element in our business and gives us line of sight to cash flows from compression services. The acquisition, at an eight times multiple of forward EBITDA, is immediately accretive to our unitholders and will deliver a mid-teens returns on investment. Interestingly, Access Compression has the ability to more than double its capacity in our Eastern operating regions over the next five years due to anticipated growth in these regions.”

Recent financing activities

In order to fund the recent acquisitions and to finance the increased requirements for working capital, ACMP has taken initiatives in the fund raising activities in the past one year. In March 2014, ACMP announced the pricing of a public offering of $750 million of senior notes. The offering was increased from a previously announced offering size of $600 million. ACMP intends to use the net proceeds from the offering to repay borrowings under its revolving credit facility and for funding working capital, various capital expenditure programs, and acquisitions.

In August 2013, ACMP entered into an Equity Distribution Agreement (or ATM) to raise $300 million. Under the ATM, ACMP has the ability to offer and sell common units depending on the conditions in the market and ACMP’s need to raise fund. For the quarter ended March 31, 2014, it sold 136,400 common units under the ATM for net proceeds of approximately $7.6 million. Previously, in April 2013, ACMP sold 10.35 million common units for an aggregate of $399.8 million. The proceeds were used to repay of amounts outstanding under the company’s revolving credit facility.

Access Midstream Partners, L.P. (ACMP) is a master limited partnership operating in the midstream energy space. Williams Companies (WMB) and Global Infrastructure Partners jointly own ACMP’s general partnership. The majority of ACMP’s revenues come from Chesapeake Energy (CHK). ACMP is part of the Alerian MLP ETF (AMLP) and Chesapeake is part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Continue to Part 8

Browse this series on Market Realist: