Midstream traded up this week, participating pari passu with the broad rally in utilities and broader equities. Midstream earnings were impressive again (especially ET, LNG and TRGP), the Colorado Proposition 112 was voted down, and natural gas prices spiked. Those positive factors helped midstream trade well in the face of deteriorating oil prices.
U.S. oil prices declined for a 5th straight week, settling negative on Friday for a 10th straight down day, which hasn’t happened since 1984. Oil prices hit a 4-year high on October 3rd. Since then, oil prices have declined more than 20%, entering bear market territory. Midstream has held up relatively well, producing -6.8% over that same time.
Likewise, over the historic 10-day losing streak, midstream has traded up 3.3% while oil prices declined 10.9%. The last 10 trading days have coincided with very strong results for midstream companies, which have left investors wanting better performance from midstream than we’ve seen.
Wednesday saw a big positive move for stock prices of Colorado-exposed midstream companies after the rejection of Proposition 112. But Midstream actually underperformed the S&P 500 on Wednesday (AMZ +1.3% vs. S&P 500 +2.1%), which was disappointing given the election result had a direct positive impact on several large MLPs. Midstream actually had a better day Monday than Wednesday in the run up to the election.
MLP Longs, Cargo Shorts
I’m no fashion expert, but to me MLPs these days are like cargo shorts.
I guess that makes upstream MLPs like fanny packs or trucker hats? And maybe FANG stocks are the fleece vest, which may have “jumped the shark” with an article in the Wall Street Journal this summer.
We have just 34 trading days left this year (13% of the year). Without a sharp reversal in energy sentiment broadly (i.e. higher oil prices), we can probably expect similar apathy towards midstream through year-end. Midstream companies are out of the penalty box with those who follow the space, but awareness and interest beyond remains challenged. But we’re almost back to January, typically the time of year when a few window shoppers will give midstream a fresh look, and we can build on that.
And Another One…IDRs in Minority
Another major MLP announced a simplification this week. The pace of simplification has accelerated in 2018 with FERC (EEP/SEP, DM, BWP, WPZ) and after ETE/ETP’s announcement in August. Almost all of the MLPs with pure play general partners have now announced simplifications (WES, ENLK, AM, ETP, TEP). The simplification spotlight now turns to those who have yet to simplify, like EQM, DCP, PSXP, SHLX, CQP, NBLX, etc. After the pending deals close, less than 10% of the market cap of the U.S. midstream universe still has IDRs. Those with IDRs are going to find it difficult to attract investors going forward, even harder than it usually is for MLPs.
Winners & Losers
The Colorado names were big movers up this week among MLPs, specifically WES, NBLX and DCP. Wes also announced simplification. NS traded well on Monday and Tuesday after posting solid results. CCLP led all MLPs after reporting results this week. SRLP was down more than 20% after pausing distribution growth and reporting weaker than expected results. SRLP had been consistently growing its distribution in obscurity since IPO. ENLK was the biggest MLP in the bottom 5, hurt by weaker outlook from Devon on SCOOP in 2019.
CEQP traded well this week and returned to the top of the YTD leaderboard. SHLX escaped the bottom 5 this week, and the remaining bottom 5 members have all declined 30%+, including distributions.
Midstream Corporations & General Partners
WGP, TGE and SEMG all traded well on Wednesday after Colorado’s Proposition 112 was voted down Tuesday. TGE held up the rest of the week to lead the group, WGP sold off after announcing simplification and SEMG sold off hard on weak 3Q results. Cheniere had another strong quarter of results and traded better than average.
ENLC sold off on concerns about Devon slowdown in the SCOOP and continued its decline since the simplification announcement. TRGP had strong results but finished the week negative. KMI made it a second straight week near the top, perhaps helped by general association with natural gas (which didn’t help WMB much this week). LNG reclaimed the 2nd spot on the YTD leaderboard.
Next week, this group of stocks gets bigger with the addition of ETRN and Altus Midstream.
Canada outperformed all other midstream again this week and has held up remarkably well over the last 5 weeks as oil prices have declined making oil prices in Canada less than $20/bbl due to lack of pipeline capacity. GEI and IPL reported strong results and outperformed, while Keyera reported weak 3Q results and underperformed for a second straight week.
TRP underperformed all week and notably on Friday after the Keystone XL setback reported Thursday night. There was some sell-side analyst table pounding on the progress ENB has made this year on a number of overhang issues early in the week that helped ENB this week.
The YTD leaderboard got a bit shaken up this week. Keyera took over the bottom spot, neck and neck with TRP. GEI broke above 20% YTD returns again pulling way ahead. ENF closed its simplification transaction and will no longer trade after this week.
News of the (Midstream) World
News flow was heavy this week: One of the few remaining major simplifications in the sector was announced (WES/WGP), and it came with a mega drop-down. There was also a minor drop-down and a very minor, but notable equity offering that traded well in the after-market. Also, another 315,000 bbls/d of fractionation capacity was announced for the Mt. Belvieu facilities of the major NGL players.
Growth Projects / M&A
Raymond Plank, founder of Apache, passed away this week at 96 years old. He is credited with creating the first ever Master Limited Partnership in 1981. In his words, he “was the first to create and enter the MLP field – and the first to leave it.” It is worth taking a spin through his Wikipedia page, his obituary in the New York Times or his memoir A Small Difference to review a life well-lived as a WWII pilot, entrepreneur, industry titan and philanthropist.