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MLP Weekly: Turn The Page

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The past year has been a challenging time for tenured (pre 2013) and more recent MLP investors as the investment vehicles have performed unlike any other comparative period of rising energy prices.  Apart from technical factors, it is hard to align unit fundamentals with unit performance.  If your are still invested, it is best to look ahead to find comfort that unit prices will perform more favorably in 2018.  A few key metrics to consider:

 

 

Fund Flows -  $3.5B of new cash was allocated to MLP packaged products in 2016,  an 32% decrease from 2016.  

 

 

Coverage Ratios - nearly 31% of MLPData's Midstream Scores universe increased Q4 2017 per unit Distributable Cash Flow Coverage over the prior year.  15 Units increased their per unit Year Over Year DCF, of which 7 also increased their per unit Cash Flow From Operations while maintaining or increasing their distributions (MPLX, KNOP,RMP,NBLX,DCP,BWP,TEP)

 

 

US Crude Production - Shale production increased 28% YoY as of December 2017 compared to an - 8.7% decrease for previous year

 

 

Shale Crude Production

 

 

Large Cap Units offered a very mixed bag for 2017 as Williams Partners lead the pack of lackluster performers.  All but three units from the list below will continue to use Incentive Distribution Payments into 2018 and one is at risk of a Simplification transaction which likely will reduce their distribution.  

 

 

Large Cap MLPS

 

 

Top Distribution Growth units provided some safety in 2018 with Phillips 66 Partners leading the pack

 

 

Top Growth

 

 

Tax Impact on MLPs

 

The Tax Reform Act should both remove uncertainty and marginally improve the benefits of unit ownership, at least through 2025, although it may take a few more weeks for tax advisors and investors to fully digest such impact.  Baker Botts published a summary table below in advance of their January 11th webinar.  

 

 

MLP Tax Table

 

 

Fund Flows

 

Outflows from Mutual Funds stabilized by the middle of December, reducing liquidations, and actually turned positive by the end of the week, as $251MM of new capital flowed into MLP packaged products.

 

 

December Fund Flows

 

 

Unit News

 

Tallgrass Energy Partners, one of the 7 units which increased both YoY  DCF and Cash Flow From Operations, continues to proactively challenge those who speculate that Pony Express tariffs will decline significantly upon contract expiration.  The latest example is Continental Resource, which exercised its contractual right to extend its Throughput and Deficiency Agreements to ship crude oil through Oct. 31, 2024. The agreements were previously scheduled to expire on Oct. 31, 2019.  In lieu of the extension, the Bakken to Cushing rate wil be $3.75 and $2.86 per barrel for Guernsey.  Pony Express filing can be found here

 

The most immediate beneficiaries of Tax Reform have been MLP funds with a positive Deferred Tax Liability accrual, which is now decreased from 35% to 21%. The change had a significant impact on those funds which have held on to their gains prior to 2014 and is recognized immediately as the DTL accrues for future tax obligations.  Here is a more detailed explanation from Tortoise

 

 

MLP Closed End Funds

 

 

 

Questions, Comments or Suggestions?  Please Contact Us Here.  We would like to thank our 11,000+ registered subscribers and wish you a Healthy and Happy New Year.  

 

MLPData is in the final stages of making significant performance improvements, which we expect to implement in early January 2018.

 

 

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