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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

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Week Thoughts: Cold November Rain

It was a largely uneventful, unremarkable week in midstream.  Stock prices swung around with sentiment around oil and broader equities.  Canadian midstream again held up better in a negative tape, resulting in slightly better performance for the Alerian Midstream Energy Index vs. the AMZ or the AMUS.

There were violent and inexplicable intra-day and intra-week moves in certain stocks that are typical of November when ex-dates and tax loss selling seem to play a larger role than in other months.  November has historically been the worst month for MLPs and midstream stocks.  Last year, for example, the MLP Index bottomed on the second to last day of November last year and rallied 20% through January before FERC and other factors sent midstream back down.

Oil was down for a 6th straight week while front month natural gas futures broke out to multi-year highs, and there was some relief in lighter NGLs (propane and ethane both up double digit percentages).  Also, while last week I made an analogy involving cargo shorts, Cheniere celebrated Thanksgiving early by commissioning their first cargo of LNG from Corpus Christi.

Index Whitepaper

I wrote a separate post this week about the challenge the midstream sector faces in measuring performance of the group as a whole now that less than 50% of the sector is made of MLPs.  Read that post here.

Winners & Losers

HCLP was the best performer this week by a lot, and it remains one of the more volatile stocks in the universe.  CQP traded well, coincident with the start-up of the Corpus Christi trains by sponsor benefitting from interest in LNG generally and CQP’s ownership of the next train up in the Cheniere LNG assembly line of projects: Sabine Pass Train 5.

There was very little follow through for the Colorado-exposed names that ripped last week.  DCP went from the top 5 to the bottom 5 this week, with near-term NGL price exposure working against DCP this week.  CEQP was down nearly double-digits this week and down 25% from its peak on no news or change to strategy, just extended profit taking, perhaps.

On the YTD leaderboard, EQM and HCLP climbed out of the bottom 5, replaced by SHLX and GMLP.  CEQP lost its top spot and tumbled all the way to fourth.  CQP returned the top 5, reaching third place with its bounce this week.

General Partners & Midstream Corporations

Within the GP and Midstream Corp bucket, ETRN and ALTM are outliers on both sides, which probably has something to do with the noise around their respective deals that closed in the last week and a half.  Natural gas-focused names in this group like ETRN, EQGP and WMB all outperformed this week.  More volatile, commodity oriented companies TRGP, SEMG and PAGP all underperformed.

EQGP and LNG were repeats in the top 5, TRGP and SEMG repeated in the bottom 5.  On the year-to-date leaderboard, not much changed in the top 5, but in the bottom 5 SEMG took over the as the worst performer in the group.

Canadian Midstream Corporations

Canada outperformed midstream this week.  TRP’s analyst day this week helped it trade noticeably better than the rest of the Canadian group.   Some buyers of TRP probably were sellers of ENB and Pembina to rotate into TRP.

IPL and GEI led last week and were the bottom of the group this week.  On the YTD leaderboard, TRP edged closer to ENB, but both trail the third largest midstream company in Canada, Pembina.

News of the (Midstream) World

If two of something constitutes a trend, we had a few trends this week: (1) compression MLPs registering units for holders, (2) MLPs selling assets to other MLPs, and (3) shipping MLPs making structural changes.

Capital Markets

  • USA Compression (USAC) registered 41.2mm common units for holders EIG and FS Energy (filing)
  • CSI Compressco (CCLP) registered 9.5mm common units for holders (filing)

Growth Projects / M&A

  • Tallgrass Energy (TGE) announced a binding open season for expansion of Pony Express Pipeline (press release)
    • Based on commitments received, Pony Express plans to expand capacity up to an additional 300,000 bpd of crude oil beyond the expected year-end capacity of 400,000 bpd
  • Tallgrass Energy (TGE) announced acquisition of Bakken saltwater disposal business of NGL Energy (NGL) for $91mm (press release)
  • Williams (WMB) announced a new JV with Brazos Midstream in the Permian Basin (press release)
    • WMB will contribute its existing Delaware Basin assets in exchange for a 15% position in the JV, but will gain control over a larger pool of residue gas to direct towards potential pipeline projects
    • Brazos will be an 85% owner and will operate pro-forma 725 miles of gas gathering pipelines, 260 MMcf/d of natural gas processing, 75 miles of crude oil gathering pipelines, and 75,000 barrels of oil storage
    • Brazos is currently constructing a 200 MMcf/d natural gas processing plant which will bring the partnership’s total operated processing capacity in the Delaware Basin to 460 MMcf/d by Q1 2019
  • Sunoco LP (SUN) announced acquisition of refined products terminals from American Midstream (AMID) for $125mm plus working capital (press release)
    • Terminals are located in Caddo Mills, TX and North Little Rock, AR and have a combined 21 tanks, 1.3mm barrels of storage capacity and 77,500 bpd of total throughput capacity

Other

  • Western Gas (WES) announced management changes, including new CEO Robin Fielder, who replaces Ben Fink, who was promoted to CFO of Anadarko (press release)
    • Fink’s tenure as CEO of WES was brief, he was appointed CEO in January 2017, but he has been involved with WES since the beginning 10+ years ago
  • GasLog (GLOG) and GasLog Partners (GLOP) announced agreement to modify IDRs, reducing top tier of IDRs from 48% to 23% (press release)
    • GLOG also agreed to waive IDR payments resulting from any asset or business acquired by GLOP from a third party
    • GLOP will pay GLOG $25mm in cash in exchange for IDR modifications
  • Teekay LNG (TGP) announced 36% distribution increase and announced elimination of K-1 structure by “checking the box” (press release)
  • Notable purchases of stock by management team members of ET (Kelcy Warren: $31mm, Ray Davis: $5mm), Cheniere (Jack Fusco: $888k), and EPD (Jim Teague: $395k, Randy Fowler: $262k)
    • Those purchases were balanced by tax planning moves by Antero CEO Rady, who donated 2.4mm shares (~$36mm worth) to a donor advised fund, which sold the shares in the open market last week (filing)