Boardwalk Pipeline Partners may be the latest in a line of long-haul pipeline companies suffering from the prodigious natural gas production of the Marcellus and Utica plays. The Houston-based master limited partnership (MLP) announced with its 2013 earnings in February its plan to cut its distribution rate by 81%—from $2.13 to 40 cents per year. Unit prices quickly tanked, losing 46% the day of the announcement.

Since last year, the Rockies Express (REX) Pipeline has faced the conundrum of how a long-haul pipeline can be useful when production in its target market renders transportation costs uneconomical. Analysts at Tudor Pickering Holt & Co. said the business of the once stable long-haul pipes have been deteriorating based on the Midwest’s gas oversupply, but gas reversal projects plus Boardwalk’s Bluegrass joint venture (JV) offered hope for a recovery. Now, however, they said a sale could be on the horizon.

Deutsche Bank analyst Curt Launer said investors have been concerned about Boardwalk for some time, citing a lack of growth and margins pressures. However, Deutsche Bank expected Boardwalk’s general partner, Loews, to continue providing cash support to maintain the distribution rate.

Analysts at J.P. Morgan said that while deteriorating results have weighed on Boardwalk’s distribution coverage, the magnitude of the cut was surprising. Boardwalk said the slashed distribution will free internally generated cash to help fund growth and an equity raise won’t be necessary in 2014. For its part, Loews has pledged to support Boardwalk’s growth projects, including the Bluegrass JV.

Comments