The benchmark index lost -1.22% for the week despite OPEC's announced 1.2MM bpd production cut, which sent crude higher 12.2% for the week. With OPEC appearing to be more like the UN rather than a Cartel, it is hard to place much faith in lasting production cuts, or the management of OPEC production levels, given the political and shale dynamics which overshadow such agreements. The 1.2MM proposed reduction is nearly equal to the production declines from US shale since May 2015. Units initially responded favorably to the OPEC actions, but reversed course as the market focused of rising rates, which are now near 2.4% for the 10 year Treasury, 34% higher since the beginning of November. MLP investors must continue to accept the volatility from headline events, and hope that unit fundamentals improve in 2017 from production growth across more than just the Permian basin.
Amongst the large cap MLP's, only Plains All American, which has 18% of their EBITDA exposed to crude prices, was able to hold a gain for the week.
The completion of Energy Transfer's Dakota Pipeline continues to be contested by Protesters, despite the US Army Corp's order to vacate the camps on the Corps property. 3500 military veterans are expected to join the protest and rumors have circulated that the National Guard may be deployed, which could further escalate tensions and violence. It is hard to see a resolution which allows construction to be completed which does not involve a concession from Energy Transfer.
Kinder Morgan announced the Government of Canada has granted approval to the $6.8B Trans Mountain Expansion project. first announced in 2012. The expansion will increase capacity of the system from 300,000 bpd to 890,000 bpd when it is completed in 2019. The approval is subject to 157 conditions.
Actively Managed Funds
Investors who have used Active fund managers have been rewarded this year as unit performance has been impacted by many factors. Two of the largest actively managed funds have achieved +25% YTD total returns with very different portfolio allocations as indicated by the most recently disclosed Top 10 positions summarized below
Exchange Traded funds gave back $100MM in flows this past week, offsetting the modest gains from actively managed mutual funds, which have added new cash every week since late July 2016.
The results to date for units which have targeted and managed top tier distribution growth have been mixed as investors weigh the scenarios which could derail future growth.
Through Q3, 26 midstream units have increased their Year over Year Distributable Flow Coverage, which for all but four (MPLX, TOO, BPL, CPLP), had gained at least 10% YTD, outperforming the benchmark index. Premium Subscribers can access the list under the Scores Tab
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1 . High Risk of Distribution Cut
2 . Distribution At Risk
3 . No Risk of Distribution Cut
4 . No Risk of Distribution Cut; Growth at Risk
5 . No Risk of Distribution Cut; Strong Growth