Chesapeake Midstream Partners serves CHK's and Total's pipelines. These fee arrangements are in place for 20-year contracts. Natural gas gathering is a fee-based business established with long-term, fixed fee contracts. This provides stability for dividend planning as an established revenue stream is in place.
- Market Cap: $3.94 billion.
- Chesapeake Energy Corporation is a $21-billion parent with long-term contracts in place with CHKM.
- Current dividend is forecast at $1.40-per share.
- Current annual dividend yield is 4.8%.
- CHKM is focused, within its presentations and investor dialogue, on growing and expanding its fee-based revenue model.
Chesapeake Energy, on July 18th, hosted its investor presentation. Here are a few key items of interest:
- 21-consecutive years of production growth
- No. 1 driller in the world of horizontal wells and horizontal shale wells
- No. 1 hedging track record in the industry; $7.0 billion in realized gains since 2001
Global Infrastructure Partners (“GIP”)
The investor is well served to be familiar with GIP. GIP owns a 42% stake in CHKM. The strategic relationship dates back to September, 2009. Key notes of interest include:
- Credit Suisse (CS) and General Electric (GE) are founding partners in GIP
- GIP's key investments are in infrastructure: energy, transport, waste, water
- GIP's mission statement is one of a long-term investor
CHKM has $220 million in debt, but otherwise has a debt-free balance sheet. Future debt issuance will permit CHKM to expand its presence in the Barnett Shale properties. CHKM plans to accept future drop-down assets from CHK for pipeline expansion. The distribution should continue to grow in the near-term and long-term.
CHKM began trading on July 29th, 2010. CHKM has a record of three quarterly dividends, each dividend higher than the last. The anticipated growth in CHK and Total SA should expand CHKM's fee-generation business. CHKM should continue to deliver significant dividend growth with its established industry partners. The partners, CHK and TOT, are aligned with the growth in Chesapeake Midstream Partners' business model.
Disclosure: I am long CHKM.