After back-to-back 3% weekly gains, MLPs traded up slightly for a third straight week, slightly ahead of the S&P 500. As discussed last week, MLPs haven’t had 3% gains 3 weeks in a row ever, so this week’s pause is not a surprise, especially with flat broad market and oil prices.
Midstream more broadly didn’t fare as well, with Canada trading down and some of the larger non MLP Index names traded down after recent strength. Year to date, MLPs are outperforming broader midstream, helped by the strong January and consistent underperformance by Canadian midstream companies. MLPs are also having a big April relative to the AMEI (7.8% vs. 4.8%).
Earnings so far have been positive, with the Marcellus midstream players (AM and EQM) posting strong results, even as basin differentials remain wide and Permian associated gas looms large. Next week, we get a deluge of earnings (EPD, WMB, OKE, TRGP, MPLX…) that can potentially further the fundamental improvement and quarter-over-quarter execution narrative, and keep the positive midstream vibes going.
Poll Question Recap – Not Simple Enough
Last week, I was hopeful we’d see a rash of obvious simplification announcements (EQM, WMB, AM, DM, TCP) and asked reader how many we would get. 37% of respondents said we would get none, 31% said we’d get one, and just 10% said more than two.
In the end we got just one (EQM/RMP) that disappointed the market and still has another few steps to go. We did get an indication that DM would collapse its IDR structure in the future (if Dominion chooses to continue its MLP strategy once FERC details emerge).
In general, the releases and conference calls offered few updates. Management teams (Antero in particular) fielded streams of simplification questions and deflecting each one. It reminded me of Forrest Gump, who would punctuate his stories by saying, “That’s all I have to say about that.”
Impatience aside, midstream simplification and corporatization is going to continue. The slow death of the IDR structure is long-term positive for the sector, because removing IDRs will better position the sector for growth going forward (after the upfront dilution or stealth cuts). Simpler companies with midstream assets may also clear the way for consolidation and management turnover, which would also improve the outlook for the sector.
Winners & Losers
Of the 5 best performing MLPs this week, just MMLP had news this week, reporting 1Q results that the market was pleased with. The bottom five had a few more catalysts. DLNG continued to decline after last week’s distribution cut. SXCP dropped on its distribution cut this week. EQM also declined despite strong results, as the market digested the latest (and not final) step in the stream-plification process.
MMLP joined the top 5 on the YTD leaderboard, after a second straight big week. There were no changes to the ranks of the bottom 5.
General Partners & Midstream Corporations
GPs and midstream corporations were mixed this week. The biggest winners from last week (TEGP, KMI, ETE) lagged this week, while others in the group caught up. AMGP had a strong week, with solid AR and AM results outweighing lack of progress on simplification.
AROC closed its acquisition of APLP and led the way. Going forward, now that AROC is no longer associated with an MLP, I won’t be including AROC in my charts, because its assets are more oilfield services than midstream.
On the YTD leaderboard, OKE reclaimed the top spot and AMGP climbed out of the bottom 5.
Canadian midstream underperformed the U.S. group again this week. ENB was at the bottom again this week, with most of the decline happening on Monday when the Minnesota ALJ complicated the approval process for ENB’s Line 3 Replacement project. Pembina was the best performer of the group. With the Toronto Stock Exchange not functioning after 1:39pm Friday, the market didn’t have much chance to react to commentary from TransCanada’s quarterly conference call that began at 3pm.
There is not a single positive midstream stock in Canada this year. Inter Pipeline and Gibson fell back into the group of other companies with negative double digit returns.
News of the (Midstream) World
Refinery-backed midstream players ANDX and PSXP got a big project win this week with Gray Oak Pipeline, finally able to leverage their downstream operations into the Permian pipeline game that’s been dominated by independent players like EPD, MMP, PAA and ETP.
Growth Projects / M&A
35 distribution announcements this week. Three distribution cuts, including two from NuStar that were previously announced, and one from SunCoke Energy Partners (SXCP). Also notable, CQP raised its distribution 10%, which puts CQP into the 25% IDR tier, with another 16% to get to the 50% IDR tier. Finally, ETE stopped growing its distribution this quarter after 2 quarterly increases.