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Summary of the 14th Annual Wells Fargo Energy Symposium

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December 8 & 9, NYC

1,937 registered participants, up from 1,741 last year and 1,567 in 2013

 

Overview

Given the timing for KMI’s dividend cut announced on December 8th, and their conference call on the 9th, much of the discussion was around MLP management teams strongly affirming their intentions to maintain distributions, while investors seemed doubtful.  KMI was not present at conference.

 

Management teams were asked why they should not cut distributions and self-fund, instead of accessing traditional capital markets.   Most of the teams responded that they were managing growth projects and capital management projects with higher ROI hurdle rates, and would explore other alternatives if necessary

 

Other financing options or hybrid securities discussed for 2016 include:

  1. Convertible preferred and preferred equity
  2. Private investment in public equities (PIPES)
  3. Sponsors taking back units
  4. Asset Sales, capex reductions, sponsor support

 

EEP, ETP, PAA were adamant that they are not cutting distributions.

 

Other general topics:

 

The market is valuing coverage and distributions stability over growth now, making it necessary for management teams to reassess capital growth needs.

 

Investors are focused on leverage metrics, including consolidated leverage at GP/LP.

 

Investors are generally very pessimistic about energy fundamentals and capital markets access, while management teams seem to be taking longer term perspectives and are not looking to make any major changes based on short-term dislocation in stock prices.

 

Investor questions focused on the quality of cash flows:  amounts from fee-based backed by take-or-pay contracts and/or minimum volume commitments, versus volume sensitive fee-based cash flow, along with Pay-on-Production (POP) - - - along with the ability of customers to re-negotiate contracts.

 

A general theme among speakers was 2016 forecasts being pushed out in to 2017 for many growth plans, with supply/demand equilibrium being reached for oil prices. 

 

Sound bites:

Operating margins felt by crude pipeline operators in mature basins, due to “heavy excess capacity” with recent build-outs overshooting demand, while trucking fleets dropped prices…”never seen that before”.    PAA/PAGP CEO Greg Armstrong

 

“With a lifetime perspective in energy…this operating environment is like 1986, not ’08 or ’98 Russian collapse, but ’08!   OPEC totally controlling again, through dumping to punish other producers.”   Sylvester Johnson, CEO, Carrizo Oil & Gas (not an MLP)

By the way, the price of oil fell in 1986 from $27 to below $10, an equivalent CPI value adjusted for 2015 is from $59 to below $22!

 

 

Commodity Forecasts

provided by Rating Agencies and guest speaker Ponderosa Advisors

                                                              2016                                                          2017 

 

Oil /Bbl

Gas /MMBtu

Oil /Bbl

Gas /MMBtu

Fitch

$48

$2.75

$55

$3.00

Moodys

$45

$3.00

$50

$3.25

S&P

$45

$3.00

$50

$3.25

Ponderosa

$52

$2.86

$56

$3.25

 

 

 

Growth In Global Crude oil Supplies Is Outpacing Demand Growth

 

  Source:  Ponderosa Advisors

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