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MLP Weekly: Melting Returns

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Snow piles and MLP portfolios have both been melting as the US has experienced the second warmest winter on record, following the warmest winter recorded last year.  Residential power driven gas demand is down over 10% YoY, leaving gas futures down 30% since year end and trading near $3.00 for the majority of 2017 expirations, just in time for new production to hit the market in the back half of 2017.   Crude production is on the rise, but still 2% lower than last March according to EIA's most recent report, with Niobrara and Permian offsetting Bakken reductions.



Positive sentiment based upon the assumption that production in the back half of 2017 would improve cash flows from certain basins, is now at risk as MLP investors are reminded that energy prices are still a critical factor of midstream performance.  MLPData's Premium Metrics summarize how large cap midstream units have performed along with their most recent Q4 Unit Metrics, which are collected and calculated daily from reported 8k's, 10Q's and 10k's. 





Unit News


Plains GP Holdings announced the sale of 42MM Class A shares for $1.3B at $30.95, which will be used to buy PAA units, the proceeds of which will pay down existing debt.  The offering is expected to close on March 1st.  


Tesoro Logistics Partners announced the sale of 5MM units at $56.8, a 4.21% to the previous close, raising $284MM, expected to close on February 27th.



Q4 Notable Earnings Call Comments


Tallgrass Energy Partner's on Rockies Express Contracting:  "With two contracts that extend beyond 2019 both Encana and the Ultra deal, we now have nearly 40% or 700 million cubic feet a day of the west and volumes pre-contracted at average rate of $0.67 per dekatherm. These contracts at a weighted average life of more than five years post 2019. Combined with the fully contracted Zone 3 volumes of 2.6 billion cubic feet a day, we have now re-contracted greater than 85% of REXs original cash flow on a long-term basis. With more than two-and-a-half years remaining before the rest of the western contracts expire, we are confident in our ability to secure additional transportation volumes on REX."


On Incentive Distribution Rights "On IDRs I think if you go back and do a Harvard Business School or whatever Business School you want case study on the MLP space. The ones that have done the best for all the constituencies both LPs and GPs are the ones where you had significant ownership in the GP with IDRs and that is not only just a big corporation and probably not big corporations frankly it's individuals have had huge amount of skin in the game. They've created tremendous value for their LPs and their GPs. I think it's incumbent upon people to decide where they want to invest, if you want to invest at the LP level or the GP level so that's number two."


Energy Transfer on Basin Volumes " We expect the volumes to grow and continue to grow as they have fairly significantly throughout this year. And we expect to play a large role in gathering, processing and delivering the residue and NGLs to market. So, great area for us, will continue to be a huge focus. And we, without a doubt, have the best advantage out there to capture business than any of our competitors."


On supporting Sunoco LP with IDR waivers "To the extent ETE, it's appropriate to support SUN, which is, as you know, you've seen our conduct in the past, that happens frequently from our partnerships. To the extent that that is necessary, that will be provided. I think there's – in my view, there is quite a bit of wood to chop before we get to that. There's some fundamental things that need to improve with SUN and just running the business. And so, we're going to focus on that first. But to the extent that ETE needs to step up, it certainly will."


On Incentive Distribution Rights "We have said recently and we'll say it for everybody here, we think, and it's inevitable, that at some point – not now, but at some point that there will be a complete consolidation of ETE into the family, and how we structure that we don't know. We think it's – we know it's premature for that at this time. We do recognize others have done it. And this sometimes seems to be kind of a herd mentality of what everybody else should do, and that's not what we're going to do."


Sunoco LP commenting on their Financial's  "Let's be clear, leverage and coverage have management's full attention and focus. We will consider and evaluate all options, nothing is off the table. That said, we're not in a position to announce anything at this time, nor will we comment further during the Q&A. We hope to be able to come back to you with a path forward soon."


On the impact of Texas Store Traffic from Higher Rig Counts "I think we'll see increased rig counts but they will be done with significantly fewer people. Just to kind of level set here, while rig counts are up significantly, as we pointed out earlier, given that rig count of over 300 last Friday, still down 60%-some and the guys that are drilling are doing it with lots more automation and a lot fewer employees. I think that's the reality of what we're dealing with."


On IDR Waivers  " So, I think at some point, it becomes just the IDR subsidies are just – become very routine rather than occasionally. I can tell you we've never not done a project because of cost of capital, never once. If a subsidy is required, we offer it. We like that optionality and we also like it because we think ETE is a great acquisition vehicle. We've only done one acquisition involving ETE, that was the Southern Union acquisition, turned out to be really, really great for our unitholders. And we think that we think we can do something like that again. And so, we're open-minded to using that and we're actually back turning in acquisition analysis….I think that the analysis that we have done to-date has been just rolling up ETP and ETE into the same vehicle, therefore reducing the cost of capital, but we haven't looked at SUN. "


Unit Metrics Report for all MLPs available to Premium Subscribers




Natural Gas Yield to Coverage


Midstream units with Natural Gas assets are plotted below comparing forward annualized yield vs Trailing Twelve Month coverage, through the Q4 2016.   Premium Subscribers can access Yield to Coverage details





Fund Flows


New cash has trickled in the last few weeks as only $60MM was allocated to MLP ETF and Mutual Funds this past week vs an average of $193MM the last four weeks






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