Why Units of Crestwood Equity Partners Rocketed 45% in 2021

What happened

Units of Crestwood Equity Partners (NYSE:CEQP) surged 45.4% in 2021, according to data provided by S&P Global Market Intelligence. That was well ahead of the S&P 500's more-than-27% gain in 2021. Several factors fueled the master limited partnership's (MLP) rally last year, including improving oil market conditions and several transactions to enhance its operations and balance sheet.

So what

Crestwood Equity Partners completed three major strategic transactions in 2021. In March, it agreed to a series of transactions with private equity firm First Reserve, enabling that entity to exit its investment in Crestwood. Crestwood acquired 11.5 million units and its general partner from First Reserve for $268 million. That deal boosted the MLP's distributable cash flow per unit by more than 15% and enhanced its credit profile.

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In June, Crestwood and its 50% joint venture partner, utility Consolidated Edison (NYSE:ED), agreed to sell Stagecoach Gas Services to Kinder Morgan (NYSE:KMI) for $1.225 billion. That transaction closed a month later, enhancing Crestwood's financial flexibility and enabling it to achieve its de-leveraging target.

Finally, in October, Crestwood agreed to buy fellow MLP Oasis Midstream Partners (NASDAQ:OMP) for $1.8 billion in cash and units. The deal will create a larger-scale midstream company with a strong financial profile. Crestwood expects the deal to close early this year. When it does, the company plans to increase its already high-yielding distribution (it's currently above 8%) by 5%. The combined entity expects to generate higher earnings and cash flow as Crestwood integrates Oasis' assets into its operations.

In addition to these strategic catalysts, Crestwood Equity Partners also benefited from improving market conditions last year. The MLP's distributable cash flow was up nearly 9% year over year through the third quarter. Meanwhile, it generated over $120 million in free cash flow after paying distributions, compared to a cash burn of more than $20 million in the same period of 2020. That gave it the money to finance its capital expenses with room to spare, helping strengthen its already solid balance sheet.

Now what

Crestwood's wheeling and dealing in 2021 have it in an excellent position for 2022. The Oasis Midstream deal should significantly increase its earnings and cash flow this year, which will support the distribution boost. Meanwhile, it expects to generate excess cash, strengthening its financial position. That will give it the financial flexibility to return more money to investors via its buyback program and pursue additional growth opportunities as they emerge. Crestwood's growing scale could enable it to be a consolidator in the MLP space in 2022 and beyond, which could fuel additional growth.

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Matthew DiLallo owns Crestwood Equity Partners LP and Kinder Morgan. The Motley Fool owns and recommends Kinder Morgan. The Motley Fool has a disclosure policy.