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December 24, 2017

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Week Thoughts: MLPs Mopping Up, Making Merry

MLP optimism continues to build, as MLPs shrugged off higher interest rates that hurt other yield-oriented securities to gain another 0.5% this week.  MLPs are now up more than 8% off the late November bottom.  Outside of the changes to the tax backdrop, not much else changed this week.  There was some volatility early in the week, with MLPs threatening two straight 1% decline days before a late rally Wednesday and follow through the rest of the week helped MLPs recover.

Mop Up Duty
MLPs are now down 7.0% for the year with just 4 days left.  The recent rally has been akin to mop-up time in a basketball game after the outcome is no longer in doubt.  Garbage time gains can build confidence for the benchwarmers, a moral victory that can carry over into the next game.
As an avid Rockets fan growing up, garbage time was when Scotty Brooks and Matt Bullard (and later Pete Chilcutt) would come off the bench for the Rockets and hoist as many three pointers as possible.  At that point, the crowd at the Summit had typically thinned considerably, but those of us that stayed through garbage time would go nuts when one of those three pointers would fall.

While the MLP business model has been challenged the last few years, MLPs are still out there and are out to prove themselves worthy of investor capital in 2018.  Investors lately have been willing to bet they’ll succeed, which at some point becomes a self-fulfilling situation.   Capital intensive companies will always have an easier path with a higher stock price.
Merry Christmas to all.  Enjoy the last 4 trading days of the year, and here’s to another strong January for MLPs that leads to a happier new year.
Winners & Losers
No news among the bottom 5 or the top 5 this week.  Recent strength in shipping MLPs continues with GMLP making the top 5 again this week.

BKEP went from worst to first this week.  MMLP gave up some of last week’s gains.

General Partners and Midstream Corporations
Cheniere outshined all others in a strong week overall for midstream corps and GPs, making a fresh YTD high and busting through $50/share on strong volume.  AMGP was the outlier on the downside, despite being the clearest winner from a lower corporate tax rate that was confirmed this week.

Cheniere extended its year to date lead to nearly 20% over second place, while NSH is not going to escape the bottom spot for the year without a massive rally.

Canadian Midstream Corporations
Only two of the 8 Canadian midstream corporations were negative this week: Enbridge and Inter Pipeline.  The market reacted negatively to Inter’s plan to spend $3.5bn on a chemical plant that will produce cash flow beginning in 2021.  Enbridge weakness was likely the result of the credit downgrade from Moody’s.

The top 3 YTD performers remain well ahead of the pack, but Gibson Energy is making a late push to join them.

News of the (MLP) World
No capital markets (as expected) this week.  We did get a few FIDs and some progress on some major energy infrastructure projects this week, including additional details and final investment decision for a major natural gas pipeline project involving several large midstreamers, a PDH plant, and progress on Capline reversal.  Not bad for pre-Christmas week.

Capital Markets

  • Phillips 66 Partners (PSXP) filed form S-3 to register up to $250mm worth of common units (filing)

Growth Projects / M&A

  • Kinder Morgan (KMI), DCP Midstream (DCP), and Targa resources (TRGP) announced FID to proceed with the Gulf Coast Express (GCX) Pipeline project (press release)
    • Approximately 85% of capacity is subscribed and committed under long-term, binding transportation agreements with the remaining capacity expected to be subscribed by early 2018
    • GCX will cost $1.7bn and will be able to transport 1.92 Bcf/d of natural gas
    • GCX, expected to be in service in October 2019, will connect the Waha Hub to Agua Dulce near the Texas Gulf Coast
    • KMI will build, operate and own a 50% interest in GCX while DCP and TRGP will each hold a 25% interest
    • Shipper Apache (APA) has an option to purchase up to a 15% equity stake from KMI
  • Tellurian (TELL) announced plans to develop three large natural gas pipelines to feed its LNG export facility under development in Louisiana (press release)
    • Previously-announced Driftwood Pipeline would be in-service by mid-2021 and deliver natural gas Gillis, Louisiana to TELL’s Driftwood LNG facility
    • New Permian Global Access Pipeline from Waha to Gillis, Louisiana would be in-service by end of 2022
    • Haynesville Global Access Pipeline from Haynesville to Gillis would be in-service by end of 2022
    • All of the pipelines are subject to commercialization and are estimated to cost around $7bn
  • Inter Pipeline (IPL-CA) announced FID of a C$3.5bn integrated propane dehydrogenation (PDH) and polypropylene (PP) plant, or the Heartland Petrochemical Complex (press release)
    • The facilities are expected to be completed by late 2021
    • IPL has already secured certain take-or-pay contacts with an average term of nine years
    • IPL will begin in early 2018 trying to secure between 70-85% of total petrochemical processing capacity under take-or-pay contracts over the next four years
    • The project is estimated to generate C$450-500mm in long-term annual average EBITDA and accretive to future FFO/share
  • MPLX subsidiary, Marathon Pipe Line, announced Capline owners’ intent to proceed with next steps in planning for potential reversal (press release)
    • Owners include Plains All American (PAA), Marathon Petroleum (MPC), and BP Oil Pipeline
    • Pending agreement among the owners, southbound service is estimated to commence by H2 2022 and would have an initial capacity of 300,000 bpd
  • Buckeye Partners (BPL) announced start of open season for the South Texas Gateway Pipeline, a 600,000 bpd crude oil pipeline from the Permian to Corpus Christi and Houston (press release)


  • Energy Transfer Partners (ETP) announced FERC approval to place Rover Pipeline’s phase 1B into service (press release)
    • The project is now capable of transporting up to 1.7 Bcf/d of natural gas
    • Final phase is expected to be in service by the end of Q1 2018
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