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Hinds Howard

Principal, Associate Portfolio Manager, Infrastructure

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Week Thoughts: Waterlogged Midstream

Another up and down week in midstream, but this time midstream corporations were up and MLPs were down, although the move was small in both directions. Midstream outperformed utilities, which sold off on higher interest rates.  The S&P 500 beat both midstream and utilities.

Not much changed on the fundamental front this week.  In other words: things are still very good!

NGL prices moderated after recent euphoria.  Natural gas prices spiked and approached $3.00/mmbtu for the first time in months.  Oil prices rallied again, finishing up close to $71/bbl.

We got more MLP attrition news, with the DM buyout and updated EEP takeout terms. After the DM roll-up offer, 5 out of the 6 most obviously FERC-impacted MLPs have been taken out or are in the process of being taken out (DM, EEP, SEP, BWP, WPZ).  TCP is the sole survivor (and looks like it may hang around for a while in limbo).

In addition to zombie MLP clean-up, CNXM benefitted from a clean-up trade from an ex-sponsor.  We did not get any fresh news on the IDR simplification front from AM, ENLK, EQM or WES.  Expect that to change imminently.

Another Rain Check

The weather in the Northeast has been sloppy all summer, and it seemed like storms consistently arrived just in time for weekends, wreaking havoc on traditional summer plans, like days at the beach or poolside, golf, hiking, camping, fishing, etc.

Now that school has started and work has picked up, suddenly the weather has lightened up.  But at the same time, opportunities for those summer activities have dwindled.  Kid stuff has taken over.  Back-to-school events, sports practices, chess lessons, birthday parties, playdates, and on and on.  At least football is back on TV…

Similarly, in midstream, just as the fundamental and financial clouds have cleared, midstream can’t seem to attract interest from the market.  Clean-up trades this week weren’t enough to avoid sloppy trading across midstream, with little follow-through day-to-day. What will it take to get midstream moving?

A few possibilities come to mind: (1) further simplification announcements, (2) closing of previously announced simplifications (ETE/ETP, ENB/SEP/EEP), (4) another quarter of strong execution, and (5) there’s always the hope of a fresh start in January with fresh midstream allocations. Bullish midstream investors were again forced to take a rain check, good for a rally at some future date…

Winners & Losers

Marine transport MLPs and more thinly-traded MLPs like HEP and CQP made up the biggest winners.  Notably absent from the top 5 are either of the MLPs involved in buyout deals updated or announced this week (EEP and DM).

The group of losers this week included several MLPs with significant unresolved issues.  BPL (distribution cut or some other strategic outcome), TCP (no clear direction on future growth or distribution plans) fall into this category.  NBLX and WES are feeling the rotation away from Colorado-exposed stocks with still 6 weeks until the election.

HEP Has outperformed the rest of the group dramatically the last two weeks on no news, perhaps a beneficiary of the rotation mentioned above given its relatively clean story.  The WES and NBLX weakness was a repeat of last week.  NBLX has been in the bottom 5 for 3 straight weeks now, and is down 31% since early August when it was trading above $53/unit.

On the YTD leaderboard, DM’s buyout offer did little to its standing among the biggest losers.  Among the winners, CQP and ETP gained some ground, others retreated.

General Partners and Midstream Corporations

For a second straight week, the GP and midstream corp. Group outperformed Canada and MLPs.  OKE and LNG were near the top.  Unresolved GPs EQGP and AMGP were among the biggest winners for a second straight week.  The three biggest losers this week were the same three as last week, and each have relatively significant operations in and around Colorado.

On the YTD leaderboard, OKE extended its lead on the group while SEMG regained its biggest loser status.

Canadian Midstream

Action in Canada was better this week.  GEI was the outlier on positive analyst research coverage.  ENF benefitted from ENB’s higher bid, but it was another step towards a simplified ENB, which the market reacted positively to.  Pembina had a solid week.  TransCanada was the big loser this week, on no news.

TRP repeated at the bottom of the group this week.  YTD, there are only 2 positive returning companies in the group.  TransCanada is at the bottom, the only Canadian midstream company down more than 10% for the year.

News of the (Midstream) World

Capital Markets

  • Targa Resources Corp (TRGP) entered into equity distribution agreement with 18 investment banks to sell up to $750mm in common equity at the market (filing)
    • This ATM replaces the company’s existing ATM
  • Noble Energy (NBL) entered agreement to sell 14.2mm CNX Midstream (CNXM) common units, representing its remaining ownership in CNXM (filing)
    • The sale involved multiple buyers and will result in $252mm in gross proceeds

Growth Projects / M&A

  • Dominion Energy (D) announced an offer to acquire remaining outstanding units of Dominion Midstream (DM) at a fixed exchange ratio of 0.2468, or $17.43 for each DM unit based on D’s closing price on 9/19 (press release)
    • Ratio implies a 3.43% discount based on DM’s closing price on 9/19
    • Offer is non-binding and has been approved by D’s board but not by DM’s board
    • D currently owns 61% of DM common units
    • Definitive agreement is expected to be reached in 4Q18 with the transaction closing in 1Q19
  • Enbridge (ENB-CA) announced agreement to acquire all outstanding units and shares of subsidiaries Enbridge Energy Partners (EEP), Enbridge Energy Management (EEQ), and Enbridge Income Fund (ENF-CA) (press release)
    • EEP unitholders will receive 0.335 shares of ENB, representing an 8.7% increase to the exchange ratio proposed on 5/17/18
    • EEQ shareholders will receive 0.335 shares of ENB, representing a 16% increase to the exchange ratio proposed on 5/17/18
    • ENF shareholders will receive 0.735 shares of ENB and cash of $0.45 per ENF share, representing an 11.3% increase to the exchange ratio proposed on 5/17/18
  • Williams (WMB) announced that the Atlantic Sunrise pipeline has achieved mechanical completion and the 1.7 Bcd/d of capacity is ready to be placed in service (press release)
    • WMB has requested permission from FERC to place the project into full service
  • CVR Refining (CVRR) announced that it intends to sell its Cushing, OK crude oil tank farm consisting of six storage tanks with a combined capacity of 1.5mm barrels and sufficient acreage for 12 additional tanks of similar size (press release)


  • Cheniere (LNG) and Vitol signed a 15-year LNG sale and purchase agreement of 700,000 tons per annum of LNG on a free on-board basis with a purchase price indexed to the monthly Henry Hub price plus a fee (press release)