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Energy distress trickles down to midstream sector

Jan. 13, 2016 6:22 PM ETStanley, Inc. (SXE) StockKMI, PAA, SXE-OLD, TGEBy: Carl Surran, SA News Editor29 Comments
  • Troubles at Southcross Energy Partners (NYSE:SXE), which last week said it would suspend cash distributions, offers an example of how distress in the energy industry has begun to flow beyond the production sector, WSJ reports.
  • Midstream companies have been viewed as more insulated from commodity price cycles than upstream firms, but pressure on the group has increased as oil and gas prices continue to slump; SXE's revenue relies primarily on the volume of natural gas it gathers and processes, and its revenues have dropped as customers cut back on drilling and production or - in the case of Swift Energy - went out of business.
  • "The Eagle Ford is uneconomical-full stop. Our clients are going out of business left and right," a source close to SXE who considers the company a single-shale player, tells WSJ.
  • Other midstream companies have experienced varying degrees of stress, but even larger peers that have not shown distress - such as Plains All American Pipeline (NYSE:PAA), which is raising $1.5B - are under pressure to strengthen their balance sheets.
  • Companies such as Kinder Morgan (NYSE:KMI) and Tallgrass Energy Partners (TEP) that operate large interstate pipeline systems and have signed long-term contracts with a more diverse base of customers are in a better position than smaller processors such as SXE whose businesses are more concentrated, says Baird analyst Frank Murphy.

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