Energy Infrastructure
How Midstream Companies are Evolving into Cash Cows
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Mar 04, 2022
Midstream companies are likely to use growing excess cash flow to return value to shareholders via multiple avenues. The decade-long buildout of North America’s oil & gas infrastructure is now largely complete, and so is the industry’s large associated capital spending—and reliance on external debt and equity financing—along with it. 1 These large, long-lead assets are now in service and are poised to generate strong cash flows for midstream companies for years to come.
We estimate that the industry’s cash returned to investors via distributions, share buybacks and debt reduction will grow this year and could increase even further through 2025 as free cash flow continues to grow. We are already seeing this trend happen in real time, with many recent examples of midstream companies using their excess cash flow to grow distributions, issue special distributions, undertake new share buyback programs, or direct cash to further deleveraging. While the exact way cash is returned to investors will depend on a variety of factors and management preferences, we believe equity shareholders could benefit regardless of the method chosen.
Endnotes
1 Source: Wells Fargo.
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