Midstream stocks were down inline with broad equities this week, after a rally Friday that almost salvaged the week. It was a 4th straight negative week for midstream, and the MLP Index (on a price basis) now sits 11.3% lower than its high for the quarter reached in mid-July.
Not that midstream stocks have been trading on a spread to treasuries, but the drop in the U.S. 10-year was fairly dramatic this week again, and the 10-year rate closed at 1.55%, down more than 130 basis points last year. Utilities were the primary beneficiaries among equities.
Another Conference in Vegas
This week I was fortunate enough to travel across the country to Las Vegas for a second time this year to attend a midstream conference. The travel, including delayed flights on both the outgoing and return flights, plus another bad showing at the tables, left me not so eager to return any time soon.
A few quick takes on the general sentiment around the conference:
In closing, a fact I noticed for the first time this trip is that casinos don’t sell chewing gum in their stores. The reason is that past casino guests made a mess with the gum back in the day, leaving it all over carpets and under tables and everywhere. Basically, because people can’t behave themselves, gum is no longer sold in casinos.
Equity capital markets at one time were extremely active, and remained pretty active in the initial stages of the MLP selloff in 2015 (remember PAA’s $1bn one and done offering?) and even into early 2017 (NS raised $579mm in an equity deal at $46.32/unit). But, like gum in casinos, the market doesn’t like to issue common equity to MLPs any more, because the equity issued usually ends up under the table or stuck to the floor.
Winners & Losers
SHLX led all MLPs with nearly 6% gain this week. Large market cap MLPs with small public floats (ENBL and CQP) were close to the top at more than 4% each. On the downside, just one MLP was down double digits, while two MLPs with brand new CEOs (NBLX and SMLP) were down nearly 10% each.
ENBL and CCR went from bottom 5 last week to top 5 this week. NBLX went from top 5 to bottom 5. MMLP and SMLP stayed near the bottom of the group both week over week and YTD. NGL dropped out of the top spot on the YTD leaderboard, replaced by BPL. SHLX’s big week pushed it into the top 5.
AM’s buyback announcement and updated investor presentation weren’t met with much enthusiasm early in the week, but when natural gas prices started to move higher Thursday, AM bounced hard and finished the week with the best performance in the group. Just a few other names among midstream corporations were positive this week, including ENLC, which likewise rallied late in the week. On the downside, TGE was again weak on no company-specific news.
OKE repeated among the winners week over week, while AM, ENLC and SEMG bounced back from double digit drawdowns last week. On the YTD leaderboard, LNG joined the top 5, but is up just 1.3% for the year, a reflection of how far others that were in the top 5 at 20%+ returns have fallen.
The biggest Canadian names performed the best this week, in order of size for the top 4 best performers. ENB has been trading better in recent weeks despite ongoing, but well known, regulatory uncertainty.
IPL’s speculative M&A bounce from last week did not see follow through this week. On the YTD leaderboard, TRP regained the top spot when IPL and Keyera stumbled this week. Each of the top 5 is up 25%+ for the year overall. As you would expect, Canada has held up better than U.S. MLPs and midstream, given stickier investor base and more conservative business models.
News of the (Midstream) World
The end of summer slowdown for news is upon us. OKE priced a bond deal early in the week, and explained at the conference that they were originally planning to issue these notes in December, but took the opportunity now to “go ahead and get it done”. After 3 CEO changes last week, there was just one this week! In project news, no new capital blessing announcements, but two fresh crude oil pipelines (Cactus II and EPIC) and a processing plant (Bear Den) went into service.
Growth Projects / M&A