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.
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.
Growth Projects / M&A