President Trump's Presidential Memorandum issued this week to remove the obstacles necessary for the Dakota Access Pipeline and Keystone pipelines to complete construction, launched MLPs into play as a wider set of investors took interest. By the end of the week, the benchmark index gave back some of the gains on the poor results and guidance provided by a Canadian sponsored MLP , but still finished the week up nearly 5%. While these PM actions clearly will enable DAPL to complete their construction, the $8B project economics for Keystone may now be the constraint for development to proceed.. These directives were followed up by a new "condition" that new pipelines must be made with US produced steel, suggesting current plans were to source materials from China. Nonetheless, the Trump follow through on his pipeline campaign promises propelled 25 units higher by 5% or more as illustrated below. The market will have to wait to see whether the Administration's new Energy Policies will both stimulate new production while maintaining current energy prices.
Plains All American, expecting Permian volumes to increase from 2.1MM to 2.5MM bpd over the next few years, announced the acquisition of the Alpha Crude Connector, a gathering and transmission system located in the Northern Delaware Basin, where over $12B of acreage has changed ownership in the last 12 months. Plains will be pay $1.215B for the midstream asset, a significant multiple over the $300MM invested by Concho Resources and Frontier Midstream, who have agreed to a 10 year term for 315,000 dedicated acres,. Plains expects the acquisition price to be well below a double digit EBITDA multiple over the next 3-5 years. In order to finance the purchase, Plains disclosed they have raised $700MM through a Continuous Offering Program since September 2016, and plans to increase their asset sales to $380MM. Although they plan to finance the balance exclusively with equity, Moody's placed PAA's rating under review for a downgrade, mentioning 5.0x leverage was the target for IG, rather than the 5.5x previous target.
Enbridge announced initial actions from their strategic review, which includes the acquisition of the public units of Midcoast Energy Partners for $8.00, a 5.5% discount to the previous close. Enbridge Partners will also sell their 99% interest in the Line 3 Replacement project for $450MM, and will fund just 1% of the remaining development costs. Enbridge Partners will use the proceeds to increase their stake in the Eastern Access project. In spite of these actions, 2017 DCF is expected to be -12.3% below 2016, which has been supported by a narrow 1.03 TTM DCF payout. Management included a distribution cut on the list of further actions, and one analyst expects a 40% cut to folllow in the next few weeks.
Q4 Distribution Scorecard
This past week, 13 units increased their distribution, including Noble Midstream Partners, which raised their first distribution 4.7% over their Minimum Quarterly Distribution, one of the many reasons that units are up nearly 64% since their IPO late September
Yield To Coverage
Midstream Annualized Forward Yields are plotted against the Trailing Twelve Month Distributable Cash Flow coverage. Premium customers can drill down into the chart for each unit's relative performance and chart against various peer groups.
The following units are expected to report their Q4 results this coming week.
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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