Hi-Crush Grows Cash Coverage for Distributions

02/05/2015 3:14 pm EST

Focus: MLPS

Jim Jubak

Founder and Editor, JubakPicks.com

Though the longer oil prices stay below $60 a barrel, the more at risk this MLP's distribution is, MoneyShow's Jim Jubak highlights three reasons this producer of sand for fracking was able to increase its distributable cash flow and its distribution.

Tuesday, February 3, before the New York market opened, Hi-Crush Partners (HCLP) reported earnings of 85 cents per unit in the fourth quarter of 2014. That was 5 cents a unit below the Wall Street consensus projection for the quarter. Revenue climbed to $130.9 million, well above the $108.9 million expected by analysts. Revenue increased by 104% from the fourth quarter of 2013.

The units of this master limited partnership were up 7% on the news. (On February 4, they gave back 3.4% of that gain as stocks retreated.)

Why the huge bump on the February 3 news?

First, relief that the company came so close to earnings estimates at a moment when everybody is waiting for the bottom to fall out of the US oil and natural gas from shale sector. Hi-Crush sells sand for use in fracking and it's only reasonable to worry that demand and prices will fall as companies cut the number of rigs in use. Countering that logic, however, is the increased amount of sand being used per well as producers try to get more oil and natural gas out of each well in order to cut costs and increase production while drilling fewer new holes.

Second, a big increase in distributable cash flow to $32.7 million that leaves the master limited partnership with a distribution coverage of 1.31 times the $24.9 million in distributions scheduled to be paid to unit holders of record as of January 30 on February 13. In 2014, Hi-Crush increased its distributable cash flow by 60% and increased its distribution by 32%. The distribution on February 13 is an 8% increase from that for the third-quarter of 2014. Hi-Crush now yields 8.3%, a yield that reflects investor worry about the sustainability of distributions and distribution growth during the current plunge in oil prices.

Third, forward-looking statements from the company that stressed the stability of revenue for 2015. 88% of the company's projected 2015 sand production is committed under long-term take-or-pay contracts. That's down only slightly from the 90% under long-term take-or-pay contracts in 2014.

Hi-Crush isn't by any means out of the woods and the longer oil prices stay below $60 a barrel, the more at risk its distribution is.

Hi-Crush Partners is a member of my Dividend Income portfolio.

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