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Eagle Rock Energy Partners, L.P. (EROC), BP plc (ADR) (BP): Looking for Rock-Solid Returns and Soaring Growth?

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Eagle Rock Energy Partners, L.P. (NASDAQ:EROC)Investors face quite the dilemma when choosing which way to play the explosive growth of oil and gas production. Some choose to invest in the upside of the commodities by investing directly in an oil and gas producer. Others want the security of midstream cash flows and instead choose to invest in the MLP sector. That means that investors seeking a little bit of exposure to both plays need to invest in two separate companies. Unless, of course, they’ve invested in Eagle Rock Energy Partners, L.P. (NASDAQ:EROC).

Overview
Eagle Rock Energy Partners, L.P. (NASDAQ:EROC)’s business is fairly evenly split between upstream and midstream, which are 54% and 46% of its business mix, respectively. The $2.3 billion company produces about 75 million cubic feet equivalent per day, while gathering about 565 million cubic feet equivalent per day. Combined, the business produces about $239.6 million in adjusted EBITDA, most of which is paid out to investors. At recent prices, this has equated to a distribution yield of about 12%.

Those returns are produced from Eagle Rock Energy Partners, L.P. (NASDAQ:EROC)’s solid asset base, which is fairly concentrated in the Gulf Coast and midcontinent regions of the U.S. as seen on the following map:

Source: Eagle Rock Investor Presentation

Rock-solid earnings
Its midstream business is focused on two areas: the Panhandle and East Texas. Overall, the company owns over 8,000 miles of pipelines and 20 processing plants, including the recently started Wheeler plant. Eagle Rock Energy Partners, L.P. (NASDAQ:EROC) has been very active in building out its midstream business, which has included organic growth projects like Wheeler, as well as acquisitions such as last year’s deal with BP plc (ADR) (NYSE:BP).

The $227.5 million BP plc (ADR) (NYSE:BP) deal included two processing plants and a 2,500-mile gathering system in the Panhandle. In addition to the acquired assets, Eagle Rock Energy Partners, L.P. (NASDAQ:EROC) secured a 20-year, fixed-fee gathering and processing agreement with BP, which is very important as it secures the cash flows of those assets. If there is a knock against Eagle Rock Energy Partners, L.P. (NASDAQ:EROC)’s midstream business its that not enough of its cash flows are fee-based; however, the company is rapidly moving in that direction. That’s what really makes this a win-win deal for both companies — BP plc (ADR) (NYSE:BP) was able to cash out of these non-core assets while Eagle Rock added secured cash flows from a strategic, long-term partner.

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