OPEC’s recent agreement to limit output with only embolden U.S. drillers who hardly needed more encouragement.  

The market has rewarded their impressive recent productivity and cost improvements by giving them plenty of additional resources to go drill some more.

This rebound in activity after 18 months of steep capital cuts is only just beginning. And while it may eventually pressure energy prices, it’s certain to boost domestic energy output that has been in decline for the past year.

No one’s happier about this than the handful of large suppliers of contracted compression equipment, which is used to lift the oil and gas from the well and to move them along gathering lines and long-haul pipelines.

This business is all about the production, regardless of the commodity price or the extent of drilling. While the number of drilling rigs in the U.S. over the past two years has collapsed, compression demand has faded only modestly, in line with output.

As  a result, compression stocks compressed to fractions of their former value last year have rebounded nicely, though they’re nowhere near back to their old highs.

The rally is likely to continue so long as cheap money keeps getting invested into shale drilling, which is why we’re adding USA Compression Partners (NYSE: USAC) to the Growth Portfolio.

Its unit price has also more than doubled from February’s lows, but remains more than 30% below the 2014 high. Baeed on the current unti price just above $18 it yields an annualized 11.6%, albeit with slim margin for error or renewed downturn.

Distribution coverage has drifted down to 1.03x for the most recent quarter, and 1.33x on a cash basis excluding equity issuance under a distribution reinvestment plan.

Debt is at 5x EBITDA, and while that’s below the current 5.95x limit under the partnership’s credit facility, that ceiling will drop to 5x by the end of next year.

In sum, USA Compression’s leverage and coverage are very similar to Archrock Partners (NASDAQ: APLP) before that rival opted to reduce the payouts. So the 12% yield is certainly no lock to stick around.

But USAC’s focus on large-horsepower compressors for midstream applications and lower reliance than Archrock on gas lift and other wellhead applications has paid off so far in a bit of extra stability and confidence, since large compressors are trickier to replace and their deployments therefore tend to prove stickier.

USA Compression is smaller and younger than Archrock, only going public in early 2013, and its faster growth during the latter stages of the shale boom has left it better positioned in the shale basins that continue to set the production pace: Appalachia, West Texas and Mid-Continent.

Source: USA Compression Partners

Second-quarter revenue and adjusted EBITDA were down 4% year-over-year, while the horsepower utilization rate slipped to 86% from 89% in the first quarter.

“On the large horsepower infrastructure portion of our business, which constitutes roughly 85% of our fleet, we are cautiously optimistic that we have seen the worst and are bouncing along the bottom in terms of a trough in utilization. And we are hopeful to turn the corner as we continue through 2016 and into 2017,” the CEO said on the Aug. 7 conference call.

“…In fact, we have multiple strong indications from upstream and midstream customers for large project installations, mostly in the Marcellus Shale and the Permian Delaware Basins, that we believe will move forward later this year and into 2017, including some already contracted projects. The types of projects you’re seeing are our bread-and-butter: multiple large horsepower unit installations under long-term contracts with blue chip customers.”

With leverage relatively high and the partnership spending very little recently on new machinery as its idled inventory grew, it’s a good bet that the next uptick in demand or additional increases in the unit price will prompt an equity offering. USAC hasn’t been shy about these.

Source: USA Compression Partners

But neither that likelihood nor the moderate risk of a distribution cut are enough to dissuade us from making this pick, on reasonable expectations of further capital gains as compressor demand begins to recover.

Growth recommendation USAC is a Buy below $22.