CaseMark Analyzing Midstream Infrastructure Assets
Evaluates midstream assets with throughput analysis, fee-based vs commodity-exposed revenue, and contract structure assessment.
When To Use
- Underwriting a pipeline, gathering system, processing plant, or terminal acquisition
- Evaluating an MLP or midstream C-corp equity or debt investment
- Assessing dropdown candidates within a sponsor/MLP structure
- Benchmarking contract quality across a midstream portfolio
- Reviewing counterparty concentration and basin-level production risk
Inputs To Gather
- Asset description: asset type (pipeline, gathering, processing, fractionation, terminal), diameter/capacity, geography, interconnects
- Throughput data: historical monthly/quarterly volumes (Mcf/d, bbl/d), capacity utilization rates, and seasonal patterns
- Contract book: shipper agreements, acreage dedications, MVCs (minimum volume commitments), fee schedules, escalators, and remaining tenor
- Revenue breakdown: fee-based vs. percent-of-proceeds vs. keep-whole vs. commodity-exposed components with historical mix
- Financial statements: EBITDA, distributable cash flow (DCF), maintenance capex, growth capex, and leverage ratios
- Counterparty data: shipper/producer credit profiles, production forecasts for dedicated acreage, and rig count trends in connected basins
- Regulatory/permits: FERC tariff status (interstate vs. intrastate), right-of-way agreements, environmental permits [VERIFY: jurisdiction-specific permitting requirements]
Workflow
Classify the asset and revenue model
- Identify asset type and position in the midstream value chain (wellhead gathering → processing → long-haul transport → fractionation → terminal/export)
- Categorize revenue: pure fee-based, fee with escalators, percent-of-proceeds, percent-of-index, keep-whole, or hybrid structures
- Quantify the fee-based vs. commodity-exposed revenue split; flag any commodity margin exceeding 20% of gross margin as material exposure
Analyze throughput and utilization
- Chart historical throughput against nameplate capacity to derive utilization rates
- Identify volume trends: declining basin production, ramp-up from new well connections, or plateau behavior
- Compare throughput to MVC floors — volumes consistently at or below MVCs signal producer stress or over-contracted capacity
- Assess organic growth potential: available capacity headroom, pending interconnects, expansion optionality
Evaluate the contract book
- Map weighted-average contract life (WACL) and remaining MVC tenor; flag contracts with <3 years remaining
- Assess acreage dedication quality: size of dedicated area, drilling activity on dedicated acreage, decline rates of existing wells
- Review fee escalation mechanisms (CPI-linked, fixed annual step-up, or redetermination) and historical realized escalation
- Identify recontracting risk: contracts rolling off in any single year exceeding 20% of revenue warrant detailed recontracting assumptions
Stress-test counterparty and basin risk
- Evaluate top-5 shipper/producer concentration — a single counterparty above 30% of revenue is a concentration flag
- Cross-reference producer credit ratings, hedging programs, and breakeven economics against current commodity prices
- Assess basin-level risks: regulatory moratoriums, water disposal constraints, takeaway bottlenecks, and competing infrastructure [VERIFY: state-level regulatory environment for target basin]
- Model a downside case: reduce throughput 15-25% below base, apply MVC deficiency payment mechanics, and recalculate coverage
Build the financial profile
- Calculate EBITDA, DCF, and distribution coverage ratio under base, upside, and stress scenarios
- Separate maintenance capex (integrity, compliance, cathodic protection) from growth capex (looping, compression additions, new laterals)
- Compute leverage (Debt/EBITDA) and compare to midstream sector benchmarks (typically 3.0x–4.5x for investment-grade)
- Assess dropdown economics if asset sits within a sponsor/MLP structure: dropdown multiple vs. market trading multiple, IDR burden
Synthesize findings and flag risks
- Summarize asset quality tier: core infrastructure with long-dated fee-based contracts vs. basin-dependent gathering with commodity exposure
- Rank key risks: commodity sensitivity, recontracting cliff, counterparty concentration, regulatory, and volumetric decline
- Identify value levers: expansion capex opportunities, fee escalator upside, recontracting at market rates, operational efficiency gains
Output
Produce an Analysis Report containing:
- Executive summary: asset description, investment thesis (1-2 paragraphs), and key metrics table (EBITDA, DCF, coverage, leverage, WACL, utilization)
- Revenue and contract analysis: fee-based/commodity split, contract tenor waterfall chart, MVC coverage analysis, top counterparty table
- Throughput analysis: historical volume trends, utilization rates, basin production outlook
- Financial projections: base/upside/downside EBITDA and DCF with key assumptions stated
- Risk matrix: ranked risks with probability/impact assessment and mitigants
- Valuation context: implied EV/EBITDA vs. comparable midstream transactions and trading comps
Quality Checks
- Confirm revenue split percentages reconcile to reported financials (fee-based + commodity-exposed = 100% of gross margin)
- Verify MVC volumes against actual throughput — flag any period where actuals fell below MVCs and confirm deficiency payment treatment
- Cross-check WACL calculation against individual contract expiry dates
- Ensure stress-test assumptions are internally consistent (e.g., volume decline should flow through to reduced variable O&M)
- Confirm all commodity price assumptions are dated and sourced (strip pricing with as-of date)
- Mark any regulatory or permitting assumptions with [VERIFY] where state or FERC-specific rules apply
- Validate that maintenance capex assumptions align with asset age, integrity management plan, and recent inspection data