Midstream stocks traded okay overall this week, but underperformed utilities and the S&P 500, which closed at a fresh all-time high after better than expected U.S. GDP data. The MLP Index (AMZ) underperformed the Midstream indexes (AMNA and AMUS), extending midstream’s lead over last 12 months and YTD.
Oil prices were stable and positive until Friday when Trump rhetoric again seemed to impact sentiment, even if the tweets about how he “called OPEC” were refuted by the primary OPEC leadership. The upstream side of the energy sector was again the primary focus this week, with a topping bid for APC from Oxy coming across mid-week, raising more questions for the future of APC’s midstream subsidiary. NBL’s midstream subsidiary likewise had its future clouded by reports of strategic evaluation by its sponsor.
Midstream will reclaim the spotlight next week, with tons of earnings, including: EPD, OKE, WMB, MMP, PSXP, CEQP, EQM/ETRN, ENLC, WES, ENLC, ENBL, SHLX, AM, ALTM, NBLX, Pembina, and TransCanada.
Spoiler Alert Season
These days, if there is some work of TV or film fiction with plot points you care about, avoiding spoilers for more than a few days is a real challenge. Especially if you have a twitter or YouTube account where you follow accounts that tend to discuss those works of fiction. Prime examples this weekend are Avengers: Endgame and Game of Thrones. The only way to avoid spoilers is to avoid all social media until you see the film or episode.
It feels like some investors with midstream allocations would like to avoid spoilers during earnings. Ahead of the earnings onslaught, investors seemed to take the money (distributions and dividends that went ex-date) and run this week, rotating into the largest U.S. and Canadian corporations. KMI and TRP benefitted from that de-risking and were the big winners of the week (see more on them below).
When I finally see Endgame this weekend, I’ll be able to “join the conversation” across the internet with my fellow nerds. After this week’s first round of MLP/midstream earnings, maybe market participants will feel more comfortable going full “binge-mode” on midstream again.
Cherry Picking Dates
YTD gains for midstream may be one reason investors are quick to trim. Midstream opened the year with big gains, but the rally has stalled out while the broad equity market caught up. YTD gains still look high, but extending the review period beyond the arbitrary calendar year makes the rally less impressive, especially for MLPs.
The MLP Total Return Index (AMZ) is 9.2% below its 2018 peak, which was 8/9/2018 and it was at its current level in early October. So, if you’ve been on the sidlines because of the hot start to the year, let’s not forget the extreme volatility into the end of last year.
Winners & Losers
Not much of a rhyme or reason to the top 5 MLP performers this week. GLOP bounced back after poor showing last week, after announcing results. SRLP traded well after maintaining its distribution. In the bottom 5, MMLP was down 24% after cutting its distribution. NBLX bounced Thursday afternoon and sold off Friday on the NBL midstream sale reports to land in the bottom 5.
MMLP repeated as the worst performing MLP. SMLP repeated in the bottom 5 too. No repeats in the top 5, but HESM did follow up last week’s gains with some positive action that pushed it into the top 5 year to date. Other leaderboard moves of note: MMLP to the bottom spot, SMLP to second worst. BPMP also continues to trade poorly.
This week’s price action in the U.S. corporation group reflected what I believe to be de-risking into earnings. The market doesn’t seem to have much confidence in midstream earnings from here. TRGP’s strong performance notwithstanding, stock performance in midstream corporations this week seemed to favor defense. Kinder Morgan and TransCanada led their groups. KMI already posted 1Q results, so choppy results for others shouldn’t impact their trading too much. TransCanada is among the least volatile midstream stocks in the universe.
TRGP has outperformed the group for two straight weeks now, perhaps benefitted from better NGL prices and some modestly better natural gas prices at Waha. ALTM, SEMG, AM were the bottom 3 again this week. On the YTD leaderboard, ENLC and WMB were leapfrogged by KMI, and OKE also breached 30% YTD returns. PAGP replaced AM in the top 5 despite underperforming this week.
As noted above, TRP was strong this week, especially on Friday when the other Canadian midstream stocks were weak. ENB was keeping pace with TRP this week until Friday’s divergence. The larger names dominated performance overall. Next Friday, TransCanada and Pembina report results.
Keyera and Gibson tumbled this week, which allowed TRP to extend its lead on the group for YTD returns. All 7 stocks remain up for the year and all but KML are up 15%+.
News of the (Midstream) World
Uptick in news flow ahead of a big few weeks of earnings. PBFX successfully raised common equity in a discrete equity transaction, proving the capital markets aren’t 100% shut. HESM and OKE announced expansions in the Bakken. But the real fireworks came from a topping bid from OXY for APC, potential strategic alternatives for NBLX. On the smaller, more retail end of things, EMES filed for bankruptcy and two MLPs cut distributions 50% each.
Growth Projects / M&A
Dividend / Distribution Announcements