Triangles background

Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Week Thoughts: Midstream Reprieve

MLPs and midstream companies arrested their recent decline this week with a flattish week.  The broad equity market had a strong week, helped by gains from some big tech firms on earnings results.  The risk-on action appeared to help the large midstream corporations that tend to get more passive flows, and Canadian midstream was also mostly positive. 

Natural gas prices also arrested their declines, but oil prices drifted lower.  Neither commodity is in a comfortable spot for the energy sector generally, which is making it hard for midstream to garner investor interest.

Notable earnings this week included PAA/PAGP and NS, both of which were better than expectations with achievable full year outlooks.  We still have a few more weeks of earnings.  TRP, ENB, DCP, and NBLX are notable earnings reporters in the upcoming week.

The Process Takes a Breather

Even though we are more than 50 games into the 82-game season, the NBA halfway point is celebrated with nearly a week off around the All-Star Game next weekend.  Here in Philadelphia, the 76ers need a break, as they stumble into All-Star weekend in 5th place in the East despite very high expectations to stat the season.  Joel Embid is getting called out by both Shaq and Barkley.  Things just aren’t working, and there are questions about the coaching staff, the future of Simmons and Embid, everything.

It’s unclear what the solution is for the 76ers, but the All-Star break can’t hurt at this point, and it offers some hope of a reset. 

Like the 76ers, midstream started the year with hope and promise.  But for the last 4 weeks, stock prices have drifted lower with oil and natural gas prices, and the MLP Index is down 10% (including distributions) since mid-January.  Like the 76ers, it’s unclear in midstream what changes the relentless negative sentiment and selling pressure.  But this week, with midstream basically flat, was a welcome break.  

Any non-negative performance in recent years has felt like a break rather that a sustained positive inflection.  It’s been like the pause in between rounds in the game “Punch Out!” when you don’t know the secret to beating Tyson. 

But it is not inevitable that the selling resumes.  There is another scenario where midstream starts to trade better from here, however unlikely it feels right now.

Winners & Losers


CCR for the second straight week led all MLPs.  Winners from last year PSXP and NS traded well this week, and there was a rare appearance in the top 5 from DCP.  The downside was dominated by marine transportation MLPs (GLOP, GMLP, HMLP) that were sold hard after the announced distribution cut from GLOP, also due to general LNG market weakness.

GMLP repeated in the bottom 5, down double digits again this week.  On the YTD leaderboard, CCR is well ahead of the group, but among larger midstream MLPs, NS is a notable positive outlier, helped this week by better than expected results and a conservative outlook. 

Midstream Corporations

Midstream corporations traded better than MLPs, on a market capitalization weighted basis.  WMB bounced back, with the market buying the confirmation of the downside development scenario from Cabot announced this week.  Other larger corporations KMI, OKE and TRGP traded well.  The bottom 5 included the usual suspects (ALTM, AM, ENLC), but was joined by LNG and HESM this week.  Cheniere was weaker as global LNG markets were in the news with Chinese companies trying to invoke Force Majeure to reject cargos.  Cheniere is not involved directly with these cargos, but the stock sometimes serves as a large liquid proxy for the sentiment of the LNG market.

AM, ENLC repeated in the bottom 5 week over week, and KMI and OKE repeated in the top 5.  On the YTD leaderboard, KMI joined HESM at the top of the group, followed closely by OKE.  The bottom 5 didn’t change much, but two names are now down 30% (including dividends).

Canadian Midstream

Canadian midstream held up better than U.S. names this week, on average trading up in a down energy tape.  ENB was the best performer, benefiting from some expected (but positive) newsflow related to its Line 3 Replacement project.  Inter Pipeline was the only negative performer of the bunch.

Inter Pipeline has separated itself on the downside year to date.   The big 3 midstream corporations are the leaders so far this year, taking turns leading the weekly returns while the smaller names lag.

News of the (Midstream) World

Not much news in midstream this week.  There was one small acquisition, tucked away in an earnings release, an option for a pipeline was exercised, and ENB’s permitting process for Line 3 inched forward.

Capital Markets

  • None.

Growth Projects / M&A

  • With earnings, Plains All American (PAA) announced $300mm acquisition of gathering assets from Felix Midstream (press release)
  • Noble Midstream (NBLX) and Greenfield Midstream announced they have exercised option to acquire 20% interest in the Saddlehorn Pipeline through their Black Diamond Gathering joint venture (press release)
    • $155mm gross cost for the 20% stake, $84mm net to NBLX
    • Saddlehorn is jointly owned by MMP, PAA and WES
    • The 20% interest was acquired evenly from MMP and PAA
  • Oasis Midstream (OMP) is said to be working with advisor to explore sale (Bloomberg)
  • Enbridge (ENB-CA) announced that the Minnesota Public Utilities Commission ruled that the Line 3 Replacement Project’s second revised Final Environmental Impact Statement is adequate (press release)
    • The MPUC also reaffirmed the project’s applications for a certificate of need and pipeline routing permit
  • Bloomberg reports private equity firm Energy Capital is pausing midstream investments and that partner Scott Rogan (former midstream investment banker) is leaving the firm (Bloomberg)
    • No word on whether Energy Capital plans to change its name to remove “energy”

Dividend / Distribution

  • BSM announced distribution cut, small in comparison to others of late at just 19%, and the stock traded ok afterwards.
  • GLOP announced flat distribution this quarter and a 78% cut next quarter. Stock fell 50% this week.