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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

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Week Thoughts: Big Changes this Summer, Little Changed this Week

This week, Midstream stocks were little changed and basically kept pace with the S&P 500, which hit a new all-time high for the first time since January.  Midstream stocks didn’t get additional lift from the first positive week for oil prices in two months, but it certainly didn’t hurt.  Trading volume was light across midstream, with a few exceptions, and should be even lighter next week.

The week did have several news items of note, more action than I would have expected at this time of year.  Two more partial asset sales to private players, an updated price for a take under, and a giant ATM filing.  Then after market close Friday, it was disclosed that the CFO of the largest MLP of them all won’t be at work on Monday.  Exciting stuff overall that belies the small week over week move in midstream indexes.

Place at the Table!

In high school, I played football.  It wasn’t Friday Night Lights or anything.  We’re talking junior varsity of a prep school in New England.  But we did travel to compete against other schools.  There were long bus rides from Connecticut to New Jersey, Massachusetts or upstate New York. On those long bus rides, we’d watch sports movies.

A staple was the 1993 film called “The Program” where James Caan plays a football coach at a major college program.

In that film, there’s a character named Steve Lattimer who showed up to training camp much larger and stronger than he was at the end of the prior season (because he’s been juicing).  There is an iconic scene when Lattimer finds out he has earned a starting spot.  He runs out to the parking lot and yells, “Starting defense, place at the table!” Then he head-butts several car windows.

Like Lattimer, midstream is returning to school this fall transformed, ready for its place at the table after a growth spurt in the summer.  Oil and NGL prices are high, oil differentials are wide, natural gas prices have firmed, private equity firms are eager to buy midstream assets, the stock market is at all-time highs, interest rates are still below 3.00%, and midstream stocks are likely to finish positive for a 5th straight month.

Also, energy got a little extra Juice Friday, when Norway’s sovereign wealth fund (the biggest in the world at $1 trillion) announced a recommendation against the plan from last year to sell down exposure to oil & gas stocks ($40bn+, including more than $2bn midstream exposure, read the Bloomberg article here).

All of the above factors appear to be conspiring to make midstream great again, but we face another quiet week on Wall Street before the fall season really kicks off after Labor Day.

Winners & Losers

SEP was the only stock in this week’s top 5 with news.  SEP’s improved economics for its take under pushed its stock price higher Friday.  On the downside, FGP dropped more than 7% Friday after announcing distribution for the quarter.  GMLP announced results and traded poorly.  No other real news among the bottom 5.

No repeats in the top 5, but HCLP made it two straight weeks in the bottom 5.  On the YTD leaderboard, CEQP broke through the 60% total return.  CQP re-joined the top 5.  As of this week, each of the top 5 has produced 35%+ for the year and each of the bottom 5 has produced -30% returns so far this year.

General Partners and Midstream Corporations

Cheniere led all midstream corporations and GPs this week, helped by stronger oil prices that tend to drive higher global LNG prices.  SEMG’s asset sale early in the week helped it outperform.  TRGP also traded well, a direct beneficiary of higher NGL prices.

Unresolved GPs (AMGP, EQGP, WGP) were the biggest losers this week, impatience reflected more openly in a week with lighter trading volumes.  GPs exist on an island, outside of the major MLP indexes and outside of broad indexes that include the corporations like OKE and KMI.  That isolation can leave them without support when dedicated MLP buyers take a break.

TGE and TRGP repeated in the top 5.  For AMGP, EQGP and WMB, it was two consecutive weeks near the bottom of the group.  On the YTD leaderboard, OKE had no change at the top, Cheniere is back above 20% return for the year.  SEMG is no longer the worst performer in the group, EQGP took that spot, down more than 15% so far this year.

Canadian Midstream

Canada kept pace with overall MLP and U.S. midstream performance, although the biggest players (ENB, TRP, Pembina) were the worst performers.  ENB’s revised merger terms for SEP led to a selloff Friday.  No real news otherwise.

GEI went from worst last week to first this week and IPL was second best for the second straight week.

News of the (Midstream) Week

Much more active week of news than I expected.  Two more partial asset sales to private players, an updated price for a take under, and a giant ATM filing.  Then after market close Friday, it was disclosed that the CFO of the largest MLP of them all won’t be at work on Monday.  Exciting stuff overall that belies the small week over week move in midstream indexes.

Capital Markets

  • DCP files equity distribution agreement to sell up to $750mm in common equity at-the-market (filing)
  • Williams Companies’ (WMB) Northwest Pipeline LLC priced a $250mm private debt issuance of 4.00% Senior notes due 2027 at 98.558% of par (press release)
  • Teekay LNG (TGP) priced a Norwegian bond due 2023 with a principal of US $100mm and a 7.89% USD fixed-rate coupon (press release)

Growth Projects / M&A

  • Plains All American (PAA) and Magellan Midstream (MMP) announced the sale of a combined 50% stake (PAA 30%, MMP 20%) in BridgeTex Pipeline to OMERS for $1.44bn (press release)
    • Following the sale, OMERS will own 50%, MMP 30%, and PAA 20%, MMP will continue to operate the pipeline
    • BridgeTex is a 400,000bpd crude oil pipeline system that extends from PAA’s basin in Colorado City, TX to MMP’s terminal and distribution system in Houston
    • Capacity is expanding to 440,000 bpd by early 2019
    • Analysts quoted a wide range of EBITDA multiple ranging from 9-10x EBITDA near-term and up to 20x EBITDA several years from now as contracts roll off
  • Enbridge (ENB) announced updated purchase price and definitive agreement to acquire Spectra Energy Partners (SEP) in previously-announced transaction (press release)
    • The new offer of 1.111 shares of ENB per SEP unit, which represents a 9.8% increase to the exchange ratio announced on May 17 of 1.0123
    • ENB will issue 91mm shares representing about 5% of outstanding ENB shares
  • SemGroup (SEMG) announced the sale of a 49% interest in the Maurepas Pipeline to Alinda Capital Partners for $350mm (press release)
    • SEMG will remain the majority owner and operator of the system which includes three separate transportation pipes serving refineries in the Gulf Coast region of Louisiana
    • SEMG quoted a 13x EBITDA multiple on the sale
    • SEMG has an option to acquire Alinda’s interest within five years of closing at a price based on a predetermined fixed return on Alinda’s investment
  • Enterprise Products (EPD) and American Midstream (AMID) announced an agreement to optimize Gulf Coast assets which AMID may elect to purchase a 25% interest in EPD’s Pascagoula natural gas processing plant (press release)
    • The purchase option is subject to certain conditions, including AMID completing modifications to facilities on its High Point pipeline that will provide incremental volumes with access to the Pascagoula plant
    • EPD-operated Toca Gas Plant, where High Point currently delivers offshore natural gas, will discontinue operations as a result


  • Enterprise Products (EPD) disclosed the resignation of CFO Bryan Balawa, effective immediately (filing)
    • Randy Fowler, who previously served as CFO from 2007 through 2015, will take over as CFO for now
    • The news broke after the market closed Friday, and the filing indicated discussion remain ongoing as to the terms of the separation (i.e. severance)
    • Non-exhaustive list of midstream companies with a CFO with total compensation in 2017 greater than Bulawa: ETP, KMI, PAA, OKE, TRGP, BPL, MPLX, ENLK, WES, MMP, CEQP, AM
    • In addition to the above list, the following had CFOs with higher cash compensation in 2017 than Bulawa: TGE, GEL, SMLP, DCP, ENBL, SEMG
  • Plains All American (PAA, PAGP) disclosed that the retirement of CEO Greg Armstrong, which was previously announced, will be effective as of October 1, 2018 (press release)
    • Willie Chiang, PAA’s current EVP and COO, will become the new CEO
    • Armstrong will remain non-executive Chairman of the board through the end of 2019
    • In a class move, Armstrong disseminated a farewell letter to industry contacts, thanking everyone who helped him along the way