Market Overview

EXCLUSIVE: Access Midstream CFO David Shiels on M&A Activity, Demand

Access Midstream Partners (NYSE: ACMP) was one of 2013’s best performers, with shares up 68.28 percent. The company announced a $0.555 distribution last week, up 23.3 percent from the same period a year prior.

In an email interview with Benzinga, Access Midstream CFO David Shiels discussed the upcoming year and the state of the industry down the road.

A Look At 2014

IPOs and subsequent consolidation has been one of the hottest topics in the MLP space. Shiels expects the trend to continue in the new year and commented, “ACMP has an asset footprint, scale and contract structure that will allow for strong organic growth for years to come. Because of this, we can be very disciplined on M&A activity to ensure any transactions are accretive to investors.”

The organic growth is driven largely by strong margins. Annualized gross margins for the most recent quarter were 67.99 percent, with operating margin at 29.07 percent.

And Beyond

Regarding the future of natural gas demand and production, Shiels emphasised Access Midstream’s position.

“Energy demand is expected to rise globally 35 percent by 2040 and natural gas production is expected to grow quickly to meet that demand,” said Shiels. “Access is the largest gathering and processing MLP in the United States, as measured by throughput volume, and our assets are located in the leading unconventional basins across the country. We believe our geographic footprint, the scale of our systems and our expertise in gathering from unconventional plays will allow us to expand our position in this growing marketplace.”

Related: Credit Suisse Assumes Coverage On ACMP On Best-in-Class MLP Story

Because the price of natural gas affects demand and subsequently drilling volume, contracts are set up to protect MLPs from gas fluctuations and a series of other risks, such as hold up. When asked about Access Midstream’s contracts, Shiels replied, “In either a bullish or bearish gas price scenario our contracts are designed to deliver mid-teens returns to investors over the 10-20 year life of the agreement.”

Valuation

MLPs are a comparatively new investment vehicle, so Benzinga asked Shiels which factors he thinks are important when trying to determine future distributions. He listed, “Historic distribution growth rate, distribution coverage ratio and organic growth capex are important metrics when evaluating an MLP’s ability to grow their distribution.” However, Shiels does warn that, “each evaluation would be specific to the circumstances of the firm.”

In a year of acquisitions, these metrics can be thrown significantly off.

Investors looking to capture Access Midstream’s Q4 distribution of $0.555 need to act quickly; the ex date is Wednesday. The dividend is expected to be paid on February 14. Shares are currently trading at $55.15, down 2.24 percent from the start of the year.

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