×
Triangles background
OUR COMPANY AND AFFILIATES
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
Triangles background

Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Week Thoughts: Midstream Parade Goes On

Energy stocks (midstream included) continued their recent run of positive stock performance in this short week, helped by ongoing positive vaccine data points.  It was the best Thanksgiving week return for midstream since 2008 (when MLPs were up 20%).

MLPs were strong again, but midstream corporations in the U.S. and Canada joined the party this week to help broader midstream indexes (AMNA and AMUS) lead this week and re-affirm their relative lead so far this year. 

Oil and natural gas were strong this week.  Mid-week, oil prices closed above $46/bbl for the first time since March, and closed the week above $45/bbl.  The OPEC meeting next week is expected to see the group extend production cuts beyond January 2021.  OPEC has disappointed in the past, but the market doesn’t seem too concerned about the large spare capacity globally right now.

There wasn’t much news this week specific to midstream.  No news has been good news for midstream, allowing the stocks to participate in the ongoing value stock discovery and rotation.  Midstream (AMNA) total return is now 24% since the recent low a month ago, +29% for the MLP Index over that time.  AMNA total return index is back to levels not seen since early June.

The break from distribution cuts, fund flow pressure and low commodity prices has infused some hope back into this sector.  While recent history suggests periods of strength and positive sentiment tend to be short-lived, it is possible this time is different and midstream stocks sustain the gains from here.  Right-sized distributions, capital spending have been positives.  High leverage, intense competition among midstream operators, and general negative fossil fuel sentiment remain headwinds.

The next few months of demand and producer guidance data points should drive the next move from here.  Large scale M&A remains a wild card that could help midstream sustain the rally.  For now, we can all be thankful for the positive recent stock returns and renewed investor appetite for midstream.

Red and Green Friday

The Christmas spirit showed up early this year in the markets and around my neighborhood.  I imagine it’s similar in suburbs around the country.  With household travel spending curbed, many in my neighborhood have been spending around their houses.  In the summer that meant trampolines, pickle ball nets and landscaping.  Now, it appears to be firepits and Christmas decorations.

Anecdotally, my family was more eager than ever to get the tree and house trimmed the day after Thanksgiving.  We fired up the Christmas music and got after it first thing.  The family has also been much more focused than usual on accumulating gifts for members of the family.  The holidays this year offer more than just the usual cheer.  They are signposts to look forward to as the pandemic drags on. 

Similar to suburban America, midstream has fewer reasons to spend money this year externally.  They have pared back.  They have focused on improving their costs structures, focused on what they can control.  Like many of us, some midstream companies are making better use of the downtime than others. 

Optimism is winning in my household, and it appears to be returning to the energy sector.  Like gaudy Christmas decorations, things can get a little ahead of themselves if you aren’t careful.  Happy Holidays!

Winners & Losers

MLPs

No news, just more good vibes for MLPs this week.  GEL led all MLPs.  Rising gas prices helpful for coal and minerals MLP ARLP.   WLKP made a rare appearance in the top 5.  There were a few stocks down this week.  Rising oil and gas prices didn’t seem to help minerals MLP BSM.  NGL was the worst performer, down nearly 13% on no news that I saw.

ARLP repeated near the top and DKL went from top 5 to bottom 5.  On the YTD leaderboard, ARLP and GEL strength this week weren’t enough to rise up the leaderboard, but now just two MLPs are down 60%+ this year, quite an improvement in the last month.

Midstream Corporations

All the midstream corporations were positive this week, helping the broader midstream indexes beat the Alerian MLP Index this week.  Cheniere was notable in the top 5 as a strong performer that is not involved in natural gas gathering & processing.  PAGP remains a laggard, and KMI took a (relative) breather after ripping in recent weeks.

ALTM and ETRN repeated as outperformers. PAGP and HESM repeated in the bottom 5, lagging the rally, but still trading up.  On the YTD leaderboard, AM now up 15%+, while WMB and Cheniere are down less than 5% each.  OKE climbed up a spot in the bottom 5, now just 1 midstream corporation is down more than 50% this year.

Canadian Midstream

Like the U.S. corporations, the entire group of Canadian midstream corporations were positive this week, and they had a full week of trading.  ENB was close to the top, after receiving some final approval for construction on Line 3 Replacement.  TRP and GEI lagged, but still bested the MLP Index.

Inter Pipeline went from worst to first on the weekly chart, but it is still the worst performer this year.  ENB’s relative strength this week helped it overtake GEI on the YTD leaderboard and narrow its gap to TRP.  Pembina is clinging to the 4th spot on the leaderboard, but Keyera is closing in.

News of the (Midstream) World

It was a quiet week in midstream news, with no M&A or surprise equity deals.  A few lingering regulatory tidbits from ENB and an update on the relationship between WMB and Chesapeake, and that was it.

Capital Markets

  • TC Energy (TRP) filed equity distribution agreement to sell up to $1.0bn worth of common shares at-the-market (filing)
  • There have rarely been equity deals on the week of Thanksgiving, but it did happen in 2016 when ENBL did an overnight offering that week at a steep 13% discount.  Nothing this year though.

M&A / Growth Projects

  • Enbridge (ENB) announced approval to begin construction of Line 3 Replacement, after the Minnesota Public Utilities Commission issued their authorization to construct (press release)

Other

  • Enbridge (ENB) filed in Federal Court to block Michigan’s “illegal actions” against Line 5 pipeline (press release)
  • Williams Companies (WMB) announced global resolution with customer Chesapeake, and the agreement is pending bankruptcy court approval (press release)
    • Chesapeake will pay all pre-petition and past due receivables related to midstream expenses
    • Chesapeake will not attempt to reject WMB’s gathering agreements in the Eagle Ford, Marcellus or Mid-Con
    • WMB agreed to reduce gathering fees in Haynesville in exchange for gaining ownership of a portion of Chesapeake’s producing assets in the region (50,000 net mineral acres) and Chesapeake agreed to a long-term gas supply commitment of volume on Transco Regional Energy Access pipeline being developed
    • WMB will seek to transition ownership of the acreage to a strong and well-capitalized operator that will grow production volumes