Midstream Feeling The Flow

Aug. 06, 2018 3:11 AM ETDLNG, ENLK, WLKP, VLP, APU, CCLP, AMID, HCRSQ, ENLC, WMB, ET, OKE, LNG, KMI, PBA, ENB, TRP, KEYUF, IPPLF, ENB:CA, TRP:CA, PPL:CA, KEY:CA4 Comments
Hinds Howard profile picture
Hinds Howard
4.87K Followers

Midstream made gains for a 5th straight week, again led by MLPs. It was the best week for the MLP Index since January 2017. Good vibes and momentum carried through from last week with strong results from EPD, OKE and ENB among others, punctuated by the earlier than expected ETE/ETP simplification. After this week's move, the MLP Index has produced total return of 11.3% since June 25th.

Earlier this week, I published a note on the monthly performance of MLPs and midstream (click here to read it). The MLP Index had its 4th month this year with 5%+ total return, and the record is 6 in 2009.

If You Re-Build It, They Will Come

This summer has been an exercise in faith for midstream believers. Midstream companies needed to show evidence that the universally-acknowledged positive fundamental environment would flow through to positive midstream results, and it wouldn't be immediately swallowed up by IDR payments, dilutive equity issuance or low returns on capital. Distribution cuts, leverage reduction through asset sales and IDR simplifications set midstream up to start showcasing per share cash flow growth.

The faith part was believing the market would care, and that there would be money ready to jump back in if midstream companies re-built some credibility by making promises and delivering on them. Even if MLPs did that, there would still be looming distribution cuts from large MLPs ETP and BPL that would serve as an overhang on interest in MLPs and midstream by extension. This week's resolution (via backdoor distribution cut) on the future of ETP's distributions removes the biggest overhang, and the market reacted positively.

This week's action could be chalked up to short covering or re-positioning within (e.g. out of OKE, into ETP). Over the next few weeks and months, we'll see if fresh money lines up to buy

This article was written by

Hinds Howard profile picture
4.87K Followers
I serve as Portfolio Manager on the Listed Infrastructure Team at CBRE Clarion Securities, a global asset management firm based in Radnor, PA. My primary focus is on investing in Midstream companies, including Master Limited Partnerships (MLPs), as well as transportation companies (rails, airports) for larger infrastructure investment team.

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