Wolf Hill Capital recently published its Q4 investor letter in which the fund discussed Archrock Partners LP (Nasdaq:APLP), Constellium and other companies. We’ve already covered Constellium and in this article, we’re going to take a look at Wolf Hill’s investment thesis on Archrock Partners, a master limited partnership engaged in providing natural gas contract compression services in the United States.

Here is what Wolf Hill said about Archrock Partners:

In our Q2 letter, we introduced readers to APLP, a master limited partnership that is the largest player in the fragmented natural gas compression space. As a refresher, we believed then, as we do now, that APLP is a terrific vehicle to express our bullishness on the long-term outlook for natural gas production growth.Recall, APLP’s business is driven by growth in natural gas production as opposed to the price of the underlying commodity.While we have no view on the direction of the underlying commodity, we are highly confident in the long-term outlook for natural gas production growth.Per the U.S. Energy Information Administration “EIA”, natural gas production is expected to grow 21% through 2021, driven by increased industrial usage, power generation, exports to Mexico, and LNG exports.

Despite this seemingly favorable backdrop, APLP units declined by 16% in the 4th quarter primarily as a result of investor anxiety concerning how the MLP corporate structure would be treated under the new tax regime.While we may be guilty of premature accumulation in the case of APLP, ultimately our view has been vindicated as APLP’s parent, AROC, announced on January 2 that they will be buying in the remaining shares of APLP that they do not own at a 24% premium to APLP’s year-end closing price.We anticipate holding our AROC shares after the transaction closes as our work suggests that substantial upside still exists for the combined company as production growth continues to increase and AROC begins to capitalize on the cyclical recovery underway by way of increasing pricing on new customer contracts.

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Archrock Inc, which owns an equity interest in Archrock Partners LP, announced a merger agreement last month to acquire all of the outstanding common units of Archrock Partners it does not already own for AROC common stock valued at about $607 million. Under the agreement, each outstanding common unit of Archrock Partners will be converted into 1.400 shares of Archrock common stock, representing a 23.4% premium to the Archrock Partners closing price on December 29, 2017, and a 23.9% premium to Archrock Partners volume-weighted average trading price during the ten trading days ended December 29, 2017. The transaction, which is expected to be closed in the second quarter of 2018, will result in a combined company with an approximate $2.8 billion enterprise value.

Shares of Archrock Partners have jumped 15.03% since the start of the year. However, the stock has dropped 19.65% during the past 12 months. APLP has a consensus average recommendation of HOLD and a consensus average target price of $15.80, according to six analysts polled by FactSet. On Friday, the stock closed down 1.23% at $13.70.