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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

2019 Year-End Midstream Statistics

The year ended this week, which you may have heard.  From this point forward, we forever will be closer to 2050 than 1990.  So, it is time to review the final results over the arbitrary annual time periods we have chosen to mark Earth’s revolutions around the sun.  It was a great year for the big midstream corporations in Canada and the U.S. in a backdrop of a very strong U.S. equity market (S&P 500 +30%).  Below is a review of performance across the midstream landscape over the last 5 years.  Not listed below is the FTSE Global Infrastructure Core 50/50 Index produced total return of 25.1% in 2019, ahead of utilities and midstream.

This year’s wide divergence of performance by the AMNA and the AMZ is the biggest of any year at 17.4%, just ahead of the 15.5% divergence in 2016 when the likes of KMI outperformed after a terrible 2015.  In the year that followed, the MLP Index outperformed by just over 400 basis points.

Oil prices finished more than 33% higher than last year, while natural gas and NGL prices reflected their oversupplied situation and dropped bigly in 2019, which hurt many producers customers of midstream operators and forced slow down in development.

Status Update: December

Checking in on the monthly and quarterly close too, it was the best December ever for MLPs (24 years of data) and for AMNA (6 years).  It comes after two straight 5%+ declining months for MLPs, in one of the more brutal stretches of weakness for MLPs ever (definitely the longest stretch of weekly negative returns ever).  The weakness was made worse, because it was in contrast to decent midstream performance and a rising broad equity market.  It was also the second consecutive negative quarter for the MLP Index.

Most of the strong 2019 return for AMNA came in 1Q, but after that initial bounce, midstream held up much better and did not suffer the same brutal second half of the year. 

Final 2019 Leaderboard Results

Before we boldly forge ahead into a new decade, let’s first review the final returns for the best and worst performing MLPs in 2019.  USAC was the overall winner at nearly 60% total return, helped by a large yield that continued to get paid out.  BPL is not picture here, but its takeout put its 2019 return just behind PSXP for the larger midstream MLP crown this year. 

The bottom 10 list was dominated by those impacted by a lower natural gas prices, either from a slowdown in natural gas directed drilling or from a declining outlook for coal exacerbated by lower natural gas prices.  SMLP took the overall loser spot, largely because of the mishandling of the IDR simplification / distribution cut dance.

U.S. Midstream Corporations

The biggest names in midstream were the best performing among the corporations in 2019, helped by their inclusion in the S&P 500, which produced more than 30% total return.  Smaller, gathering & processing corporations, especially those tied to areas where gas-directed drilling plans were revised lower, under-performed dramatically. 

TRGP rallied late in the year and posted strong returns relative to MLPs and other gathering & processing focused names, which reflects a change in tone by management and aggressive asset sale program throughout 2019.