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MLP Weekly: Simply Smaller

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The march towards Master Limited Partnership Simplification continued this past week removing one of the larger LP issuers from the investable universe, while leaving existing LP unitholders a mixed bag of a 2017 taxable event, a lower dividend, but the potential for future growth.  Incentive Distribution Rights, which over time stress coverage ratios and increase cost of capital, is central to the Simplification theme, and is a key driver to the MLP Circle of Life.   An IDR burdened MLP can exist for 20+ years, but M&A can expedite the process, leaving investors with an involuntary, and unexpected, tax event. However, IDRs are associated with high growth units and if fact are imbedded in to all midstream units which have increased distributions by greater than 10% over the past year.  A tough tradeoff for long term investors.





An unintended consequence of the Administration's decision to nominate an existing Commissioner to Chairwoman left FERC with only two members as of Friday to approve new pipeline requests, an insufficient number needed for a Quorum.  Friday afternoon, after a flurry of pipeline approvals (Energy Transfer's Rover, William's Atlantic Sunrise expansion), the Agency issued an order to delegate authority to agency staff in order to reach a Quorum for the next 14 days, providing the  Administration with time to nominate three new Commissioners.  



Unit News


ONEOK Inc announced an agreement to acquire the public units of ONEOK Partners in a taxable stock swap, where unitholders will receive 0.985 shares of OKE, a 22.4% premium at the time of the announcement.  While the LP unitholders will be receiving a lower dividend ($3.16 vs $2.46), ONEOK plans to increase the dividend to $2.98 annualized by Q3 2017, and 9-11% annually through 2021.  While unitholders will not receive taxable dividends, ONEOK does not expect to pay any federal incomes taxes prior to 2021 at the earliest.   As a result of the transaction, the Incentive Distribution Rights will be terminated, and ONEOK will cover their expected dividends by 1.2x and will retain their Investment Grade credit.  


Vanguard National Resources and Azure Midstream Partners both filed for Chapter 11 Reorganization, an event which may allocate CODI to unitholder's who neglected to sell their units prior to restructuring.  



Kimbell Royalty Partners priced below range at $18.00, but closed at $20.64




Enterprise Products Partners - Earnings and Call Comments


On Eagle Ford Production: "We think the Eagle Ford is a sleeper that people aren’t paying attention to and I'll tell you what we like about what we see in the Eagle Ford, one is rig counts were up substantially and people don't realize that they've moved significantly off of their low and continue to add two to five a week. we're seeing smaller players come in. So we think the Eagle Ford is going to be an area where you are going to from a couple handfuls of very large players to smaller players, which is really opposite of what's happened in the Permian.  you're going to see a lag from the time you start drilling and completing to the time the new production comes on.  And that lag is this month's, so call it you know, people projected to be anywhere from 90 to let's say 150 days from the time you deploy rigs, to the time you put that production on. So we're going to see in the Eagle Ford something that’s no sooner than back half of '17 loaded, no sooner than, as far as increases in production."


On MLP Qualifying Income Regulations:  “We believe all or substantially all of the EPD's business activities are qualifying for the final rigs. The question on whether the new rigs are effective or not, pertains to the timing of President regulatory freeze and the dates the final regulations were filed and published in the Federal Register. "


On C-Corp Conversion/Tax Reform:  "We're pretty open from a standpoint of the whether it's to continue in the MLP world as a pass-through or if there's something we need to adapt to going forward, we're pretty open. I think our main focus is to be able to come in and continue to raise capital at an attractive cost. "


Fourth Quarter DCF Compared to Prior Periods





Magellan Midstream -  Earnings and  Call Comments


On Refined Products “We expect base refined products volume to remain relatively flat between years. Even though the commodity environment has improved over the last year, we remain cautious for guidance purposes on demand for distillates in our markets, especially after seeing a decline during 2016."


"The other key component for our refined products pipeline is the average tariffs we charge. You're probably aware that the current FERC indexation methodology is based on the change in the Producer Price Index plus 1.23%. The preliminary change in PPI for 2016 is negative 1%, which will result in basically flat rates for those markets (40%) that follow the index."


On the Use of ATM  "We are in the process of establishing an At The Money  program, but given what we see right now, we do not anticipate the need to use the program until material new organic projects are announced."


On Permian Capacity "We are probably less bullish as a lot of other folks are that we're going to be reaching 100% utilization on existing capacity late this year, early next year."


Fourth Quarter DCF Compared to Prior Periods





Q4 Distribution Announcements






Due to a Technical Glitch, we were not able to Publish the Weekly Article on Sunday and have instead published a limited Update.   Questions, Comments or Suggestions, Please Contact Us Here





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