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November 25, 2017

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Week Thoughts: Leftovers

The MLP Index finished 0.6% lower this week, recovering a bit after setting a fresh MLP Index closing low for the year on Tuesday at 257.1.  MLPs seemed to take positive cues from Keystone XL’s approval early in the week, then seemed to be negatively impacted Friday by FERC’s ruling on crude oil marketing businesses.

Oil prices climbed another 4% to close at nearly $59/bbl, helped by a big oil inventory reduction this week.  Expectations are high for extension of the production restrictions when OPEC meets next week, but it’s unclear what positive surprise might result from the meeting at this point.  Natural gas prices broke down, falling 7.9% on the week on warmer near-term weather expectations.
As discussed last week, MLPs face near-term headwinds ahead of 2018, given seasonal challenges of tax-loss selling and limited willingness to open fresh MLP positions (and K-1s) with just a month to go in the year.  That leaves many of us already involved with the sector feeling like Thanksgiving leftover or the first ones to show up at a holiday party.

The next few weeks will offer a chance for upstream and midstream companies to provide their initial expectations for 2018.  Positive tones at conferences may pull forward some midstream hope into December.  Outside of that, pressure from lower stock prices could lead to some much-needed project or sector consolidation.
Winners & Losers
We’re taking a break from charts this week.  Canadian midstream companies definitely outperformed MLPs and U.S. corporations for the week.  TransCanada was strong all week following the Keystone XL announcement and perhaps some relief after last week’s oil leak.
Although volume was light most of the week PAA (-3.3% Friday) and EPD (-2.8% Friday), both of which have large oil pipelines and crude oil marketing businesses, were underperformers Friday on strong volume.  PAA finished the week down 5.6%.  PAA’s price broke below $19.00 for the first time since mid-August.
News of the (MLP) World
No capital markests transactions this week, but there was news that appeared to move markets from the regulatory realm.
Growth Projects / M&A

  • Nebraska Public Service Commission (PSC) approved the proposed route for TransCanada’s (TRP) Keystone XL pipeline (press release)
    • TRP is still evaluating how the decision will impact cost and schedule of the project
    • TRP finished up 1.6% on day of PSC’s approval
  • EPIC NGL Pipeline, an NGL pipeline being developed by a private company, has begun construction (Midland Reporter Telegram)
    • The NGL Pipeline running from the Permian to Corpus plans to have phase I in-service in early 2018 and the full 375,000 bbls/d in early 2019
    • EPIC also plans to construct a fractionation facility in Corpus to accommodate the Y-grade supply
    • Despite industry skepticism on the need for the pipeline, EPIC continues to push forward after signing up a customer (BP) in September

Other

  • FERC denies Magellan Midstream proposal to establish oil marketing business (Reuters)
    • MMP sought express permission to engage in activities already used by other oil pipeline operators with established oil marketing arms, most notably EPD and PAA
    • MMP argued that it is common practice to support pipeline volumes with marketing affiliates that set out to take a loss to support pipeline volumes and fees
  • Archrock Partners’ (APLP) CFO, David Miller, will leave company to pursue other opportunities, effective as of December 1 (8-K)
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