Protected Principal Retirement Strategy: FISHing For Marlin Midstream Partners

| About: Azure Midstream (AZUR)

After a month's vacation and a few project deadlines I have enough time to provide readers with an update on a new addition to the Protected Principal Retirement Strategy portfolio.

As you are well aware, I am especially interested in the MLP sector, and the midstream companies in particular. There have been a number of MLP IPO's of late, many of which are of the upstream variety. I tend to pay more attention to the midstream assets, given the fact that they are less sensitive to the prices of the underlying commodities.

With this in mind I have recently initiated a small position in Marlin Midstream Partners LP (FISH) in our portfolio.

What It Is

FISH is a small cap MLP that owns and develops midstream assets, primarily in Texas, Utah and Wyoming. It is well-diversified in natural gas, natural gas liquids and crude oil logistics. Its gathering and processing activities are located in East Texas, within the Cotton Valley Sands, Austin Chalk, Eaglebine and the Haynesville Shale formations. In addition, FISH has transloading operations in both Utah and Wyoming.

FISH went public on July 31, 2013 at a price of $20. Like many other recent MLP IPO's, the price has dropped recently. The company has been in business since 2004, and all operations are fee-based.

Financial Information

FISH recently reported earnings for the quarter ending September 2013. The results were primarily for the two month period subsequent to the IPO.

Gross margins were $12.5 million as compared with $8.3 million for the same quarter 2012. Net income was $1.9 million and distributable cash flow was $5.3 million. The distribution coverage ratio was excellent at 1.31x. Net income per unit was $.16.

During the nine months ended September 2013 capital expenditures were $9.7 million.


FISH declared a prorated two month distribution of $.23, which was recently paid on November. This equates to a full quarter distribution of $.35, or $1.40 annualized. At the current price of $16.95 FISH is yielding 8.3 percent.

From The Conference Call

The conference call was quite optimistic, implying that fourth quarter results will exceed those of the third quarter, primarily due to new contractual agreements entered into at the close of the IPO.

The following is a quote from its CEO relative to the outlook going forward:

Looking ahead, we see multiple avenues for growth and putting the right of first offer on the midstream, energy asset developed or owned by NuDevco for the next five-year period. AES has informed us should there is a need for additional transloading capacity at our Wildcat facility in addition to the need for heated tanks, we are considering opportunities for capacity expansion in Utah to accommodate this demand. The development of the crude oil tank services will allow us to expand our footprint along with the crude oil value chain, will provide much needed services for our affiliate.

As I mentioned in last quarter, NuDevco midstream had eight transloaders ready to install at viable locations, existing or new site. We cannot estimate the date at this time but we are ready to move forward as soon as we receive a go-ahead. These may eventually be dropped down into the partnership.


I believe that the recent weakness in the stock price is a reflection of the overall decline being experienced by all MLPs. FISH appears to be bottoming around the $17 level, and we recently initiated a position just under $17.

If you can believe the information presented in the conference call and the earnings results, one can anticipate above-average growth in both the distribution and stock price over the coming years.

Disclosure: I am long FISH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article does not constitute either a buy or sell recommendation for any stock mentioned.

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