Rattler Midstream LP’s RTLR main competitive advantage is the contracts from its E&P corporate sponsor, Diamondback Energy, Inc. FANG. These contracts protect Rattler Midstream against pricing and margin pressure, according to RBC Capital Markets.
The Analyst
RBC’s TJ Schultz initiated coverage of Rattler Midstream with a Sector Perform rating and a $20 price target.
The Thesis
Diamondback Energy, a top-tier Permian producer with 628,000 gross leasehold acres in the play, has plans for running 18 to 22 drilling rig program and completing 290-320 wells annually from 2019 to 2022. This level of activity should drive significant volume growth across Rattler Midstream’s water and hydrocarbon midstream assets, Schultz said in a note.
The company has several 15-year fixed-fee contracts to provide Diamondback Energy midstream services on around 204,000 acres in the Delaware Basin and 222,000 acres in the Midland Basin.
Schultz emphasized that the contracts include 426,000 acreage for producer water services, which means Rattler Midstream’s produced water business should be valued at a premium to uncontracted produced water businesses.
As Diamondback Energy executes its multi-year development plan, Rattler Midstream should be able to achieve positive FCF in 2020 and generate FCF growth of more than 30 percent “for several years thereafter,” the analyst wrote.
Price Action
Shares of Rattler Midstream had declined about 1.2 percent to $18.98 at time of publication Monday.
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