Organized as a master limited partnership (MLP), Exterran Partners LP is the largest provider of contract compression in the US and owns 2.4 million horsepower worth of capacity. The MLP focuses on leasing equipment for use at the wellhead and in gathering and processing systems. About 40 percent of the partnership’s compression units have a capacity of 1,100 horsepower to 1,500 horsepower, while another 40 percent weigh in at less than 800 horsepower.
Exterran Partners usually inks six- to 12-month initial contracts with customers, after which both parties can cancel the agreement with 30-days notice. Producers typically pay a fee to move compression equipment into place, an investment that helps to dissuade them from exiting the contract.
The MLP doesn’t take title to any hydrocarbons, and customers supply the natural gas needed to power the compression units. The majority of the firm’s contracts require customer to pay a monthly fee regardless of production disruptions; if adverse weather or excess gas supply force the producer to shut in wells, Exterran Partners still gets paid.
A tight supply-demand balance for compression services in liquids-rich plays such as the Eagle Ford Shale and the Niobrara Shale have enabled Exterran Partners to push through price increases in two consecutive Januaries.
Nevertheless, drop-down transactions from the MLP’s parent and general partner, Exterran Holdings (NYSE: EXH), will drive distribution growth over the next two to three years. Since going public in 2006, Exterran Partners has completed six drop-down deals that were immediately accretive to distributable cash flow and enabled the MLP to hike its quarterly payout. The most recent deal, completed in April 2013, involved about 250,000 horsepower of compression equipment and associated contracts.
With a yield of almost 6.8 percent, units of Exterran Partners offer a superior current return to the average MLP and a clear path to distribution growth.