Enterprise, Tallgrass Raise Payouts Amid Oil, Gas Price Rout

  • Tallgrass buying a bigger stake in Pony Express oil pipeline
  • Enterprise forecasts distributions to rise each 2016 quarter

Energy pipeline operators Enterprise Products Partners LP and Tallgrass Energy Partners LP raised payouts to investors on Monday and forecast more increases even as sliding oil and gas prices have forced others to cut dividends.

Enterprise, the biggest U.S. pipeline partnership, raised its quarterly payout to 39 cents a unit and said management will recommend increases for every quarter this year. Tallgrass raised its own fourth-quarter distribution to 64 cents a unit and said management would recommend an increase of at least 6 cents for the first quarter.

The bigger payouts stand in stark contrast to cuts and freezes announced by other pipeline operators amid last year’s collapse in oil and natural gas prices. Kinder Morgan Inc. said last month that it was cutting its full-year dividend to conserve cash, and Oneok Inc. has projected its dividend will remain flat in 2016. Enterprise said new projects will help fund its increased payouts, while Tallgrass cited an increased stake in an oil pipeline that will increase cash flow.

Distribution Commitment

Tallgrass is committed to increasing cash distributions, “even in challenging capital market conditions,” the company’s chief executive officer, David G. Dehaemers, said in a company statement.

The partnership will pay Tallgrass Development $475 million in cash and 6.52 million common units for an additional 31 percent stake in the Pony Express crude system, bringing its ownership to 98 percent, the statement shows. The deal is positive with a price that represents support from Tallgrass Development, RBC Capital Markets LLC analyst Elvira Scotto wrote in research published Monday.

Enterprise doesn’t typically give guidance on its distribution growth, but “due to recent actions by some of our midstream peers to reduce or freeze their dividends/distributions, we believe it is important to provide our investors with visibility,” Jim Teague, chief executive officer of Enterprise’s general partner, said in a statement.

Steady, Consistent

“It’s just steady and consistent management,” Michael Kay, a Bloomberg Intelligence analyst said Monday in an e-mail. He doesn’t own Enterprise or rate the stock. “Five percent has been the trend there for years and they generate excess cash to add a cushion.” 

The announcements were made before regular U.S. trading began. Houston-based Enterprise Products rose 3.4 percent to $26.44 in in New York after
losing 29 percent last year. Tallgrass, based in Leawood, Kansas, rose 0.4 percent to $41.39. It slid 7.8 percent last year. Tallgrass Energy GP LP, owner of its general partner, rose 4.3 percent to $16.66. It fell 45 percent to $15.97 last year following a May 6 initial public offering at $29 a unit.

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