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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

Week Thoughts: No Holiday Drama for Midstream

Midstream traded up the first 3 days this week to cap a run of 7 positive days out of 8.  Then on a very low volume session Friday, midstream corporations and MLPs sold off a bit to finish the week slightly positive overall.  Midstream broadly was in-line with the broad stock market overall (S&P 500 +0.6%).

Oil prices continued to grind higher this week, while natural gas prices closed the week at a 52-week low.  Not surprising to see natural gas prices so low given how pleasant the weather has been this holiday week.  There wasn’t much going on in the market or with midstream news this week.

The MLP Index is poised to finish with its best December in 19 years to close out a volatile decade.  This year’s full annual return should finish positive for the first time since 2016.  The broader midstream index (AMNA) will finish 2019 with a much bigger positive return, its first positive return in 3 years and second-best annual return out of 6 years of data.  AMNA will also likely finish with a better return than the UTY in 2019, but a bit behind the S&P 500 and its 30%+ total return.

Winners & Losers

MLPs

With no news to drive stock performance and light volume, its hard to glean anything from the winners vs. losers chart this week.  Smaller out-of-index names WLKP and USAC rallied big this week, CEQP bounced back.  SMLP was the biggest loser.

WLKP repeated in the top 5.  CCR went from best performing to near the bottom.  On the YTD leaderboard, USAC’s strong week has it vying for the top spot for 2019 in what may be a photo finish on Tuesday.  On the downside, SMLP solidified its spot as the worst performing MLP this year. 

Midstream Corporations

Midstream corporations were almost all positive this week, with a wide range.  ALTM was the best performer in the group with a 18% gain.  AM and ETRN continued their rally off the bottom with another big gain this week.

AM and ETRN repeated in the top 5 week-over-week.  On the YTD leaderboard, OKE remains on top, separating a bit from KMI.  AM and ETRN both pulled ahead of ENLC into 4th and 3rd worst performance in this group YTD.

Canadian Midstream

All Canadian Midstream corporations were positive this week, led by Keyera.  TRP outperformed the group slightly on the only piece of news from the week (see below).  Pembina was the worst performing name in the group.

On the YTD leaderboard, with the KML transaction closed, Pembina is now the worst performing stock in the group this year at 30.7%.  Gibson and TRP are vying for the top spot, both with more than 55% total return YTD in U.S. Dollar terms.  Very strong showing from Canada this year (and over the last 5 years, for those who haven’t been paying attention).

News of the (Midstream) World

Just one bit of news this week, announced on Boxing Day in Canada.

Growth Projects / M&A 

  • TC Energy (TRP-CA) announced sale of 65% of Coastal GasLink Pipeline Project to KKR and AIMCo (press release)
    • Under the terms of the sale, TRP will receive upfront proceeds that include reimbursement of KKR and AIMCo’s proportionate share of the project costs incurred as well as additional payment streams through the Project’s construction and operation.
    • TRP will grant the First Nations an option to acquire a 10% interest in Coastal GasLink on similar terms
    • The Coastal GasLink Pipeline Project (expected to cost C$6.6bn) will link the Western Canadian Sedimentary Basin to the LNG Canada export facility on the West Coast of Canada