By Stacey Morris
Last week, we attended the MLP and Energy Infrastructure Conference hosted by the Master Limited Partnership Association in Orlando. The event was well attended, surpassing last year's record. While the FERC news, Permian discounts and oil prices were all relevant topics, the main focus was around the frustrating disconnect between fundamentals and equity values in the midstream space. With the recent restructuring announcements from several MLPs, corporate structure was a major topic, as well as what it will take for investors to become more constructive on this asset class.
Fundamentals intact but noise distracts.
Fundamentals continue to look strong with WTI crude just under $70 per barrel, and US oil and gas production growing rapidly. Multiple MLPs reported strong first-quarter 2018 results, and management teams were broadly optimistic on the fundamental outlook for their businesses. As we've written about several times, the underlying fundamentals for US oil and natural gas production are robust, with growing exports representing a significant opportunity for the energy infrastructure space.
While improved fundamentals are widely understood, the frustration has been equity performance relative to the fundamental backdrop. Most investors are aware of energy's low relative weighting in the S&P 500 (just over 6% currently relative to 10+% prior to 2013), which reflects a broader underinvestment in the energy sector. Specific to the MLP and energy infrastructure space, noise from headlines (restructurings, FERC news, distribution cuts) has likely kept some investors on the sidelines, particularly new investors, past retail investors and institutional investors not required to allocate money to the space. Others have already bought dips in the past and are comfortable with their existing exposure.
What does it take for money to move back into the space?
Generalists and non-dedicated MLP investors have been perhaps sidelined due to corporate governance concerns (lack
