NEW YORK ( TheStreet) - Regency Energy Partners (RGP) is in a strong position to survive a challenging commodity pricing environment in 2015, thanks to its hedges and fee-based business. But this master limited partnership, or MLP, is not the best -- nor even average -- when it comes to rewarding investors through distribution growth.
The Regency partnership is part of a larger empire known as Energy Transfer Equity (ETE) , which serves as the general partner for Regency and also has significant stakes in Energy Transfer Partners (ETP) and Sunoco Logistics (SXL) .
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Over the last few years, Regency has significantly grown its asset base by spending a total of $9 billion on acquisitions. Additionally, Regency has also undertaken around $1.5 billion in organic growth projects from its legacy assets.Consequently, since the end of 2010, Regency has grown the size of its fixed assets, such as its properties, pipelines and plants, nearly twice as much as Energy Transfer Partners and Sunoco Logistics.
Furthermore, the partnership has little exposure to volatile commodity prices. Earlier this month, Regency's CEO Michael Bradley said during the third quarter conference call that the partnership has already hedged two-thirds of its commodity exposure for next year, while nearly 75% of its cash-flow will come from its fee based business. That bodes well for Regency, given WTI oil futures have fallen nearly 28% to below $70 a barrel during the last three months.
Regency has also built an "attractive" backlog of projects wrote Goldman Sachs' analyst Jerren Holder, in a Nov. 17 report. The backlog currently stands at $2.6 billion, the company said in a presentation last week, and underpins Regency's earnings growth.
However, this backlog does not make Regency an attractive investment. The partnership will likely offer below-average distribution growth, which offsets the positives from having a large backlog, wrote Holder.
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