USA Compression Partners, LP Stock

USA Compression Partners, LP operates as an independent provider of natural gas compression services in the United States of America (U.S.). The company is managed by its general partner, USA Compression GP, LLC (the General Partner), which is wholly owned by Energy Transfer LP (Energy Transfer).

As of December 31, 2022, the company had 3,716,854 horsepower in its fleet. The company provides compression services to its customers primarily in connection with infrastructure applications, including both allowing for the processing and transportation of natural gas through the domestic pipeline system and enhancing crude oil production through artificial lift processes. As such, the company’s compression services play a critical role in the production, processing, and transportation of both natural gas and crude oil.

The company provides compression services in shale plays throughout the U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, Mississippi Lime, Granite Wash, Woodford, Barnett, Haynesville, Niobrara, and Fayetteville shales. Demand for the company’s services is driven by the domestic production of natural gas and crude oil. As such, the company has focused its activities in areas with attractive natural gas and crude oil production, which generally are found in these shale and unconventional resource plays. According to studies promulgated by the EIA, the production and transportation volumes in these shale plays are expected to collectively increase over the long term.

The company’s business largely focuses on compression services serving infrastructure applications, including centralized natural gas gathering systems and processing facilities, which utilize large horsepower compression units, typically in shale plays. The company also provides compression services in more mature basins, including gas lift applications on crude oil wells targeted by horizontal drilling techniques. Gas lift is a process by which natural gas is injected into the production tubing of an existing producing well to reduce hydrostatic pressure and allow the oil to flow at a higher rate. This process, and other artificial-lift technologies are critical to the enhancement of oil production from horizontal wells operating in tight shale plays.

The company operates a modern fleet of compression units, with an average age of approximately 11 years. The company acquires its compression units from third-party fabricators who build the units to its specifications, utilizing specific components from original equipment manufacturers and assembling the units in a manner that provides it the ability to meet certain operating condition thresholds. The company’s standard new-build compression units generally are configured for multiple compression stages, which allows it to operate its units across a broad range of operating conditions. The design flexibility of the company’s units, particularly in midstream applications, allows it to enter into longer-term contracts and reduces the redeployment risk of its horsepower in the field. The company’s modern and standardized fleet, decentralized field level operating structure and technical proficiency in predictive and preventive maintenance and overhaul operations have enabled it to achieve average service run times consistently at or above the levels required by its customers and maintain high overall utilization rates for its fleet.

As part of its services, the company engineers, designs, operates, services, and repairs its compression units and maintain related support inventory and equipment. The compression units in the company’s modern fleet are designed to be easily adaptable to fit its customers’ changing compression requirements. Focusing on the needs of its customers and providing them with reliable and flexible compression services in geographic areas of attractive production helps it to generate stable and predictable cash flows in the near term.

The company provides compression services to its customers under fixed-fee contracts with initial contract terms that typically range from six months to five years, depending on the application and location of the compression unit. The company typically continues to provide compression services at a specific location beyond the initial contract term, either through contract renewal or on a month-to-month or longer basis. The company primarily enters into fixed-fee contracts whereby its customers are required to pay its monthly fee even during periods of limited or disrupted throughput.

The company provides compression services to major oil companies and independent producers, processors, gatherers and transporters of natural gas and crude oil. Regardless of the application for which the company’s services are provided, its customers rely on the availability of the equipment used to provide compression services and its expertise to maximize the throughput of product. The company’s modern, flexible fleet of compression units, which have been designed to be rapidly deployed and redeployed throughout the country, provides it with opportunities to expand into other areas with both new and existing customers.

The company also owns and operates a fleet of equipment used to provide natural gas treating services, such as carbon dioxide and hydrogen sulfide removal and natural gas cooling and dehydration, to natural gas producers and midstream companies.

Operations

Compression Services

The company provides compression services for a fixed monthly service fee. As part of its services, the company engineers, designs, operates, services, and repairs its fleet of compression units and maintain related support inventory and equipment. In certain instances, the company also engineers, designs, installs, operates, services, and repairs certain ancillary equipment used in conjunction with its compression services. The company consistently has provided average service run times at or above the levels required by its customers. In general, the company’s team of field technicians services only its compression fleet and ancillary equipment.

Compression Fleet

The fleet of compression units that the company owns and uses to provide compression services consists of specially engineered compression units that utilize standardized components, principally engines manufactured by Caterpillar Inc. and compressor frames and cylinders manufactured by Ariel Corporation. The company’s units can be rapidly and cost effectively modified for specific customer applications. As of December 31, 2022, the average age of the company’s compression units was approximately 11 years. The company’s modern, standardized compression unit fleet is powered primarily by the Caterpillar 3400, 3500, and 3600 engine classes, which range from 401 to 5,000 horsepower per unit. These larger-horsepower units, which the company defines as 400 horsepower per unit or greater, represented 87.1% of its total fleet horsepower (including compression units on order) as of December 31, 2022. The remainder of the company’s fleet consists of smaller-horsepower units ranging from 40 horsepower to 399 horsepower that are used primarily in gas lift applications.

Many of the company’s compression units contain devices that enable it to monitor the units remotely through cellular and satellite networks to supplement its technicians’ on-site monitoring visits. The company intends to continue to selectively add remote monitoring systems to its new and existing fleet during 2023 where beneficial from an operational and financial standpoint. All of the company’s compression units are designed to automatically shut down if operating conditions deviate from a pre-determined range.

The company adheres to routine, preventive, and scheduled maintenance cycles. Each of its compression units is subjected to rigorous sizing and diagnostic analyses, including lubricating oil analysis and engine exhaust emission analysis. The company has proprietary field-service automation capabilities that allow its service technicians to electronically record and track operating, technical, environmental, and commercial information at the discrete unit level. These capabilities allow the company’s field technicians to identify potential problems and often act on them before such problems result in down-time.

Marketing and Sales

The company’s marketing and client service functions are performed on a coordinated basis by its sales team and field technicians. Salespeople, applications engineers, and field technicians qualify, analyze, and scope new compression applications, as well as regularly visit its customers to ensure customer satisfaction, determine a customer’s needs related to existing services being provided, and determine the customer’s future compression service requirements. This ongoing communication allows the company to quickly identify and respond to its customers’ compression requirements.

Customers

The company’s customers consist of approximately 275 companies in the energy industry, including major integrated oil companies, public and private independent exploration and production companies, and midstream companies. The company’s ten largest customers accounted for approximately 38% of the company’s total revenues for the year ended December 31, 2022.

Suppliers and Service Providers

The principal manufacturers of components for the company’s natural gas compression equipment include Caterpillar Inc., Cummins Inc., and Arrow Engine Company for engines; Air-X-Changers and Alfa Laval (US) for coolers; and Ariel Corporation, Cooper Machinery Services Gemini products, and Arrow Engine Company for compressor frames and cylinders. The company also relies primarily on four vendors, A G Equipment Company, Alegacy Equipment, LLC., Standard Equipment Company, and Genis Holdings LLC, to package and assemble its compression units.

Governmental Regulations

A significant portion of the company’s customers’ natural gas production is developed from unconventional sources that require hydraulic fracturing as part of the completion process. Legislation to amend the Safe Drinking Water Act (SDWA) to repeal the exemption for hydraulic fracturing from the definition of underground injection and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, have been proposed from time to time and the U.S. Congress continues to consider legislation to amend the SDWA. The company is also subject to air regulation at the state level. For example, the Texas Commission on Environmental Quality (TCEQ) has finalized revisions to certain air permit programs that significantly increase the air permitting requirements for new and certain existing oil and gas production and gathering sites for 15 counties in the Barnett Shale production area.

History

The company was founded in 1998. The company was incorporated in 2011. It was formerly known as USA Compression Holdings, LP and changed its name to USA Compression Partners, LP in 2011.