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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Midstream Week Thoughts: Groundhog Day for Thanksgiving

Monday was positive for midstream, capping a rare 3-day run of positive performance.  But apathy returned, as Midstream and MLPs traded down the rest of the holiday-shortened week.  MLPs once again were the laggards, and the MLP Index has now been negative for 10 straight weeks, and is down 18.5% since July 12, including distributions. 

Oil prices were sharply lower Friday on renewed OPEC uncertainty ahead of next week’s meeting that brought back memories of 5 years ago when OPEC chose not to act.  Natural gas prices collapsed on outlook for milder weather for natural gas prices, which dropped back towards $2/mmbtu out on the forward curve for Spring of next year.  So, there wasn’t much to be thankful for this week.

This next upcoming week should offer some significant strategic updates with Williams Companies and Enbridge both hosting investor days this week.

Review of Polls

If you missed last week’s series of poll questions, I encourage you to go back and review the results (click here to review).  The results indicated that most of you believe valuations are attractive for midstream stocks, midstream fundamentals are “good enough” or “good”, and believe valuation and ramping free cash flow as the most compelling reasons to buy midstream stocks today.  

Valuation, I have been told, is not a catalyst by itself.  Free cash flow will emerge over time and may eventually prove to be a catalyst.  But more often than not in midstream, the calendar is the catalyst.  With just 21 trading days left in the year, investors in midstream stocks can take comfort in attractive valuations today and a fresh calendar as a potential catalyst to stop the bleeding.

As far as the biggest risks you see for midstream stock performance, your opinion was more mixed, with slowing production (30%), poor capital allocation (24%), political & regulatory headwinds (23%) as the most selected among the risks listed.  The least chosen risks were “competition” and commodity prices, both of which seem to have been big drivers of weakness in midstream performance in the past.

Status Update: November Drain

This Friday marks the end of another month.  MLPs finished November down 5.8%, its second consecutive 5%+ negative total return month, which hasn’t happened since February and March of 2018 in the aftermath of the FERC ruling. 

The MLP Index total return is -11.6% this quarter to date, similar to last year at this point in the 4th quarter when the MLP Index total return was -8.8%.  Last year’s 4Q was the worst of any 4Q since 2008 and the third worst quarter ever for the MLP Index.  The steady declines for MLPs have pushed the MLP Index total return to negative for the year so far, erasing the early 2019 bounce.

AMNA was negative for November, but did nearly 500 basis points better than the AMZ.  AMNA has outperformed the AMZ for 4 consecutive months and has a YTD lead of more than 1700 basis points.  AMNA is down less than 5% this quarter to date, in sharp contrast to this time last year, when AMZ and AMNA traded down almost in tandem (along with stocks more broadly). 

Looking ahead, December has on average been a better month than November for both AMZ and AMNA, but last year’s 9%+ decline for both indexes stands out in recent memory.  However unlikely, a repeat of last December would further demoralize a despondent investor base, especially if it happened while the S&P 500 held flat or went higher.

Winners & Losers


Reviewing MLP performance this week, there were a few stocks that traded up, but most of those are not in the Alerian MLP Index, including GMLP, EVA, CCR and KNOP below, all on no news.  SMLP dropped nearly 12% to finish as the biggest loser this week.

SMLP repeated as the worst performing MLP this week, ARLP and GLOP repeated in bottom 5.  NGL went from top 5 last week to bottom 5 this week.  CCR went from bottom 5 to top 5.  On the YTD leaderboard, NS was positive this week and regained the overall lead from CAPL.  In the bottom 5, EQM and CCR were positive this week and are now outperforming NRP year to date.

Midstream Corporations

In the midstream corporation group this week, there were 3 stocks that traded up, and they were 3 of the smallest names in the group RTLR, ALTM and ETRN.  Cheniere outperformed the group.  On the downside, commodity sensitive names traded poorly.

AM was again the worst performing stock in the group, which has now been the case for 3 straight weeks.  TRGP and ENLC also repeated in the bottom 5.  On the YTD leaderboard, no changes to the names or order of the top or bottom 5.

Canadian Midstream

Canada outperformed the U.S. again this week, especially on a market-cap weighted average basis, because the biggest two names in group (ENB and TRP) were positive.

IPL repeated among the better performers this week and seems to have found a floor after underperforming the group since news of the unsolicited offer broke over the summer.  On the YTD leaderboard, ENB joined the 30% total return club ahead of its investor day next week.

News of the (Midstream) World

Light week of news, but there was another upsized debt offering, some fresh news on TGE (but not on the bid process), and further insider purchases.

Capital Markets

  • Hess Midstream (HESM) priced upsized private offering of $550mm of 5.125% senior notes due 2028 at par (press release)
    • Offering was originally $500mm
  • NuStar Energy (NS) entered into a purchase agreement with William Greehey, the Chairman of NS’s GP board, for a $15mm private placement of common units (8-K)

Growth Projects / M&A 

  • Seaway Crude Pipeline, a 50/50 JV between Enterprise Products (EPD) and Enbridge (ENB-CA), announced a binding open season for the expansion of 200,000 bpd of light crude capacity (press release)
    • Competitive fee schedule with rates starting at $0.99/bbl, which is not very high


  • Tallgrass Energy (TGE) announced CEO David Dehaemers is retiring and stepping down as CEO, effective immediately, and will retire as a member of the board on December 31, 2019 (press release)
    • William Moler has been named CEO
  • Plains All American (PAA) board decided to re-combine roles of chairman and CEO following the retirement of CEO Greg Armstrong at the end of 2019 (8-K)
    • Willie Chiang will become the new Chairman of the board beginning 2020
  • Notable insider purchases at Kinder Morgan (KMI) this week including:
    • Director Fayez Sarofim purchased $4mm worth of stock at the end of the last week (filing)
    • Chairman Richard Kinder purchased $5.9mm worth of stock (filing)