Deutsche Bank analyst Curt Launer upgraded his rating on shares of Chesapeake Midstream Partners L.P. (NYSE:CHKM) to "Buy" from "Hold" with $30 price target, after the company's annual analyst day.
CHKM held its annual Analyst Day yesterday and began with an extensive discussion of Chesapeake Energy Corp. (NYSE:CHK) as its parent and General Partner. In Launer's view, the summary is that the CHK capital, balance sheet and other issues does not impact CHKM in terms of current operations or value creation.
Combining this with significant upside in the Marcellus, Mid-continent, Barnett based on existing assets and growth in the Eagle Ford and other areas on the way supports the analyst's view of a industry average distribution yield for CHKM and an increase in his rating.
Launer believes much of the recent decline in the CHKM unit price relates to concerns about CHK that have recently surfaced. The decline occurred despite positive 1Q-2012 earnings per share (EPS) reported last week.
The analyst has reviewed governance procedures and operational factors and concludes that CHK's issues does not impact existing CHKM assets due to Minimum Volume Commitments (MVC) and other provisions.
Launer also sees future opportunities for CHKM in drop-downs and organic growth unaffected by CHK. Lastly, with CHKM assets generally the only way for production in its areas to get to market, even in a scenario of CHK asset sales, CHKM will remain the gatherer/processor.
CHKM is projecting $660 million of growth capital expenditures this year. The analyst's summary of project returns is in the mid to high teens for this capital creating further visibility of growth in distributable cash flows and distributions.
With CHKM operating as a 100% fee for service business and a longer term distribution growth rate of 12% on top of the 18% growth in the past year. Back at CHK there are $2 billion of midstream assets that are being developed as future drop-downs to CHKM.
Chesapeake Midstream owns, operates, develops and acquires natural gas, natural gas liquids and oil gathering systems and other midstream energy assets. The company focuses on natural gas gathering, the first segment of midstream energy infrastructure that connects natural gas produced at the wellhead to third-party takeaway pipelines.
CHKM is trading down 0.61% at $22.98 on Thursday. Providing quality reviews, articles and writings on crude oil, energy and gas online.
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