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CBRE GLOBAL INVESTORS

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers providing real estate and infrastructure investment solutions to over 500 clients worldwide.

CBRE GROUP

CBRE Global Investors is the investment management division of CBRE Group, Inc. the world’s premier commercial real estate services and investment firm.  The company’s shares trade on the New York Stock Exchange under the symbol “CBRE.”

REAL ESTATE SERVICES
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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Week Thoughts: KMI Anthem Over, Play Ball!

Midstream performance was mixed this week, with strength in MLPs offset by weakness among large U.S. corporations like WMB and KMI, the latter of which reported less than stellar 2Q results coupled with low energy commentary.  The market backdrop was benign, little changed.  Oil prices were firm and held above $41/bbl and the U.S. oil rig count increased for the first time since March.

There was just one positive day for midstream/MLPs this week (Tuesday), but it was a big one, up around 5% across all indexes, including a 5.5% gain for the AMZ.

In the dog days of summer, with a lull of news, and in a generally banal week of stock price action, I went scouring the internet for inspiration this weekend.  I found two notable and relevant (maybe) historical events that happened around this time in decades past. 

This Week in Oil History: Permian Basin Discovered 100 Years Ago

First, I learned at the American Oil & Gas Historical Society website that 100 years ago this week (7/20) The Texas Company (later known as Texaco) struck oil in West Texas at a depth of 2,750 feet on land owned by William Abrams.

The Abrams No. 1 well and its 129bbls/d of initial production was the first commercial discovery of oil in the Permian Basin, the largest oil producing field in the U.S. even today 100 years later.  The picture below is of the much more famous Santa Rita No. 1 well that was spud in 1921.

This Week in Baseball History: Rose-Anthem

The second major anniversary I discovered this week was that on 7/25/20, 30 years ago this week, Roseanne Barr sang the national anthem at a sparsely attended San Diego Padres game.  The oral history was captured in an article published here.  It was memorable in its awful-ness (and for the crotch grab at the end).  It was so bad, even she covered her ears, although that was probably a signal to the crowd of booing fans in the military-oriented city of San Diego. 

Why is the Rose-Anthem anniversary relevant to midstream today?  Good question.  If there were consensus expectations ahead of Roseanne singing the anthem, they would have been low.  The actual outcome would have surprised to the downside, in other words it would have been worse than expected.

Expectations for midstream this earnings season are low.  Kinder Morgan’s results this week undershot those expectations and the stock struggled this week. In the face of regulatory, political, fundamental and technical headwinds, a bad earnings season would not be helpful. 

This week, the following large midstream players will have a chance to change the narrative when they report earnings: EPD, ENB, OKE, TRP, MMP, PSXP and SHLX.

Winners & Losers

MLPs

SRLP led all MLPs this week with a 14% gain, including 6.6% Friday after announcing a distribution that was flat quarter-over-quarter and year-over-year.  USAC and NGL, two other MLPs with high yields that announced flat distributions were also big winners.  NBLX (+6.7% this week) did not make the top 5 list, despite news of a new parent named Chevron.

SPH was the biggest loser this week, weaker after announcing a 50% distribution cut, its second cut in 3 years.  MMP was a notable big cap MLP in the bottom 5, maybe on read through from weaker KMI product pipeline results. 

NGL repeated in the top 5 week-over-week.  ARLP went from bottom 5 to top 5.  On the YTD leaderboard, SRLP jumped EVA into the top spot in the battle between smaller retail investor favorites.   No other changes of note.

Midstream Corporations

KMI weakness as noted above was the story of the week, driven by disappointing earnings in what has been a rough 2020 vs. original expectations for KMI.  Other natural gas-focused stocks (LNG, ETRN, WMB) were also weaker this week.  Upstream-oriented stocks like ENLC, AM, RTLR, TRGP were relative winners.

AM’s string of strong relative performance continues, as it repeated in the top 5 of corporations.  OKE has also traded better the last two weeks.  WMB, HESM and KMI went from outperforming last week to lagging this week.  On the YTD leaderboard, the entire group is negative, but AM is closing in on single digit negative returns.

Canadian Midstream

For a second straight week, Canadian midstream has outperformed as a group. Tightly bunched as usual, with no company news announcements.

Nothing much to note vs. last week.  ENB modestly outperformed TRP.  On the YTD view, TRP remains the leader, IPL still lagging, but the gap between Keyera and IPL is closing.

 

News of the (Midstream) World

Not much news this week.  Distribution announcements moved some stocks, as noted above.  Also, there were some equity issuance ripples with a fresh, very large ATM filing and a tiny equity deal.

Capital Markets

  • Oneok (OKE) files equity distribution agreement to sell up to $1.0bn worth of common shares at-the-market (filing)
  • Tellurian (TELL) sells 35mm shares for $1.00/share in a registered direct offering (filing)
    • In April 2019, TELL sold 10mm shares for $10.06/share

M&A / Growth Projects

  • None.

Distributions

  • One distribution cut, but this quarter is all about maintaining after the cuts last quarter.