The new Trump administration should bode well for MLPs, RBC analysts say, as cabinet appointments appear energy friendly and the federal regulatory environment could ease somewhat for energy; MLPs also could benefit from the new pro-infrastructure stance, which could help the group to stay clear of any tax changes.
The group was in a "hunker down" mode this year, RBC says, as the best performing MLPs mostly were those that came out of distress by successfully addressing balance sheet concerns - such as NGL Energy Partners (NYSE:NGL) and Plains All American Pipeline (NYSE:PAA) - and those most obviously exposed to the fundamental macro themes on the year - such as Targa Resources (NYSE:TRGP) and Oneok (NYSE:OKE)/Oneok Parnters (NYSE:OKS).
YTD, Oneok, American Midstream (NYSE:AMID) and USD Partners (NYSE:USDP) are the best performers in the sector, all more than doubling, while Ferrellgas Partners (NYSE:FGP) and Southcross Energy Partners (NYSE:SXE) both lost more than 50%.
Plains All American Pipeline (PAA +0.6%), the operator of the largest pipeline carrying crude oil from the Permian Basin to the storage hub at Cushing, Okla., has extended an outage of the pipeline due to an unspecified "pressure deviation," Reuters reports.
The pipeline had been set to restart yesterday after a 10-day stoppage for a hydrotest, but news of the extended outage caused the spread between the front-month to second-month crude contracts to narrow, as traders anticipated a draw of nearly 2M bbl/week from Cushing because of the outage.
The pipeline is the only outgoing one in the Permian Basin, and has a capacity of 450K bbl/day of crude; if PAA does not complete work on it by Oct. 20, storage facilities along and around it could fill up, which traders say would push spot prices further down.
Plains All American Pipeline (PAA -1.5%) is upgraded to Overweight from Equal Weight, and ONEOK (OKE -3.9%) is downgraded to Equal Weight from Overweight at Morgan Stanley.
PAA looks attractive, “given its Permian basin positioning, with dominant gathering market share and underutilized assets that will benefit from increasing Permian crude production,” Stanley says, expects that by 2019 PAA will generate twice the EBITDA growth from additional capacity utilization than reflected by current consensus estimates.
Valuations on near-term cash flows limits upside for OKE, the firm says, while noting that the company's fundamentals remain healthy, and it is optimistic about the coming natural gas liquids cycle in 2018-20.
The firm's stock price targets are $37 for PAA and $50 for OKE, while it also maintains an Equal Weight rating and $14 target on Plains GP Holdings (PAGP -0.2%).
Data that companies disclose to the U.S. Pipeline and Hazardous Materials Safety Administration when they suffer spills found that SXL leaked crude from onshore pipelines at least 203 times over the last six years, ahead of at least 190 recorded by Enterprise Products Partners (EPD -0.4%) and 167 by Plains All American Pipeline (PAA +0.8%).
Reuters says SXL acknowledged the data and said it had taken measures to reduce its spill rate.
Energy Transfer Partners (ETP -0.8%) is constructing the pipeline to pump crude produced at North Dakota's Bakken shale fields to the U.S. Gulf coast, and will hand over the pipeline's operation to its SXL affiliate upon completion.
Energy MLPs enjoyed a lift this week (at least until yesterday) following news of the Enbridge-Spectra merger, particularly those lacking sponsorship by producers that may be targets for consolidation.
FBR Capital says MLP valuations have improved ~45% from lows reached early this year, and expects macro trends to lift the sector; the firm thinks CAPL could enjoy double-digit growth for nearly seven years, and says MMLP is another notable outperformer whose valuation reflects more than enough discount for a distribution cut (which the firm is forecasting) - it also likes ENLK, EEP, TLP, SRLP, USAC, WLKP and USDP,
RBC notes favorable sentiment in the MLP realm, highlighting attractive valuations particularly at ETP, BWP and AMID, and sees dropdown stories - out of favor YTD - such as VLP and SHLX offering visible growth that can support the stocks over the next 12 months.
Sentiment is improving and "recovery emerging” around energy MLPs, Citi's Faisel Khan says, citing Improving commodity prices and tighter credit spreads as the main reasons, as some companies are positioning for volume growth.
Khan's "key thematic picks" are Energy Products Partners (NYSE:EPD), as a play on growth in natural gas liquids, Plains All American Pipeline (NYSE:PAA) and Plains GP Holdings (NYSE:PAGP) on growth in the Permian basin, and EnLink Midstream (NYSE:ENLC), as a play on Oklahoma expansion.
PAA’s agreement with PAGP affiliate Plains AAP LP eliminates PAA’s incentive distribution rights and economic rights associated with PAA’s 2% general partner interest, in exchange for 245M newly issued PAA common units and the assumption of all of AAP’s outstanding debt.
The firm says the terms are much as it expected, materially reducing the risk to PAA's investment grade rating, and that the simplification is welcome news for investors.
Plains All American Pipeline (NYSE:PAA) and Phillips 66 Partners (NYSE:PSXP) announce a 50/50 joint venture to own and operate a pipeline that transports crude oil from Oklahoma's STACK play to Cushing.
Under the agreement, PAA contributes its existing terminal located at Cashion, Okla., with ~200K barrels of crude oil storage, and the 55-mile STACK Pipeline with a current capacity of ~100K bbl/day of crude, while PSXP pays $50M; the partners will spend another $15M to expand the STACK Pipeline, add storage space and build a truck station.
PSXP is positioning itself to more efficiently funnel crude to its refineries, while PAA acquires a financial partner to help fund its growth.
Plains All American Pipeline (PAA +3.5%) is upgraded to Neutral from Sell with a $26 price target, raised from $21, at Goldman Sachs, which makes its call even after PAA posted a surprise Q2 loss on 25% lower revenue Y/Y.
Goldman says PAA's Q2 results were better than it had expected, supported by solid volumes in its fee-based transportation and facilities segments; PAA management also reaffirmed 2016 guidance, calling for adjusted EBITDA of $2.175B.
The firm raises its EBITDA estimates for PAA to reflect improved volumes and margins, while the annualized distribution estimate is raised to $2.20/unit, in line with guidance.
Despite near-term leverage concerns, Goldman believes PAA is on the path to improving its balance sheet as volumes recover.
Plains All American Pipeline (PAA -0.3%) and Plains GP Holdings (PAGP +0.1%) are both upgraded to Neutral from Underperform at Baird, which says the new ownership and governance structure is simpler and leaner, and the distribution cuts are credit positive and sustainable.
Baird, which raises its price target on PAA to $30 from $14 and on PAGP to $12 from $5, says it holds PAA's execution capability in high regard and models above-market Permian volume capture and below-market declines elsewhere.
But Wunderlich's Jeff Birnbaum thinks investors may be too optimistic about the near-term benefits of the simplification move, keeping his Hold rating on both units as "the stocks are already pricing in a significant cash flow recovery where there could still be substantial choppiness along the way."