Large cap midstream units were mixed again this week as crude traded down while OPEC members plan to meet this weekend to review compliance with the 1.2MM bpd production cut commitments, presently expiring in June. Early indications are that they group plans to extend the cuts for another six months. The long view continues to focus on Big Oil's recent $10B investment in shale expected to produce 1.5MM bpd of new production over the next three to seven years, a 30% increase to current levels. The path between now and then will include periods of significant price volatility, which will continue to both boost, and put pressure, on MLP performance as short term oil correlations remain high.
As expected, the Trump administration issued a permit to approve the construction of the $8B Keystone XL pipeline, albeit without the previous conditions that US produced steel must be used in the construction. TransCanda is expecting to receive Nebraska's approval to construct the pipeline through the state some time in the next 7 months.
Genesis Energy Partners quietly issued 4MM new units at a 6.8% discount at $30.65, finishing the week above the issued price at $31.59
Energy Transfer Equity announced a $1B ATM plan with 20 broker dealers
Magellan Midstream announced a New Condensate Splitter Agreement, which will earn a 7x EBITDA return on the $330MM of invested capital, expected to begin commercial operations in June 2017. Magellan has dismissed it's lawsuit against Trafigura as part of the long term condensate and storage agreement. Management re-affirmed their previous guidance, due to lower butane prices and margins which account for 13% of their overall margin, offsetting the ~ $20MM of EBITDA expected from the new splitter not previously included in guidance.
Large Cap Yield to Growth
Forecasted Distribution growth rates are less dynamic in 2017 than they were in 2014 with a wide divergence across the large cap midstream units as illustrated below in the Yield to Growth Chart
As large caps units have offered meager returns to date, active Fund managers have been challenged to generate positive performance in 2017. Below is a list of Closed End Funds which have positive YTD performance with the majority of yields in excess of 8%. Our most recent fund concentration list can be found here which illustrate the diverse approach taken by some managers to outperform.
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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