Marlin Midstream Partners LP

01/15/2014 5:00 am EST

Focus: MLPS

Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

 

Our favorite speculative idea for the company is a master limited partnership which went public on July 26; it operates midstream infrastructure that handles natural gas (75%) and crude oil (25%), notes Elliott Gue, editor of Energy & Income Advisor.

Among the natural gas assets at Marlin Midstream Partners, LP (FISH) are two processing facilities in Panola County, Texas; CEO W. Keith Maxwell, III indicated that permits for new wells, in the acreage served by its systems in Panola County, ticked up by 6% from year-ago levels, while overall permitting among its five largest customers jumped by 37%.

And even if drilling activity were to slow in its operating areas, fee-based contracts that include minimum volume commitments, would insulate the MLP's distributable cash flow against this weakness.

However, prospective investors should note that many of Marlin Midstream Partners' gathering and processing contracts expire in three years or less, increasing the risk that the MLP might not be able to renew these agreements at similarly favorable terms.

Meanwhile, drop-down transactions from its privately-held sponsor and general partner, NuDevco Partners, should drive cash flow and distribution growth for Marlin Midstream Partners in coming years; the MLP has the right of first offer on any midstream assets that the parent develops over the next five years.

In its first partial quarter as a publicly-traded entity, Marlin Midstream Partners paid a prorated distribution of $0.23 per unit, equivalent to the minimum quarterly distribution of $0.35 per unit, contemplated in its prospectus.

Over this short period, the MLP generated enough cash flow to cover this payout by 131%—well above management's stated target of 110%.

Despite a solid third quarter, the stock has given up 13% of its value since Marlin Midstream Partners went public in July. This disappointing performance likely reflects the MLP's market capitalization of less than $300 million and a general partner that's closely controlled by Marlin Midstream Partners' CEO.

Marlin Midstream Partners could be worth a nibble for speculative investors who have the stomach for volatility. With an implied distribution yield of around 8%, Marlin Midstream Partners LP rates a buy up to $19.

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