- Midstream had another strong week, outpacing the S&P 500 with a 2.9% total return, although MLPs underperformed broader midstream.
- Now that the bellwethers EPD and KMI have announced results, we enter the next stage of the 4Q earnings season that will include more potential for surprises in either direction.
- Midstream and MLPs opened 2019 in a similar fashion to 2018, but even better.
Midstream had another strong week, outpacing the S&P 500 with a 2.9% total return, although MLPs underperformed broader midstream. Tailwinds from higher oil prices, Exxon's (XOM) strong results, and support for income securities in the broad market helped midstream this week.
Now that the bellwethers EPD and KMI have announced results, we enter the next stage of the 4Q earnings season that will include more potential for surprises in either direction. PAA, MPLX, ANDX, PSXP, BPL and APU are notable reporters this week. MPLX could announce a strategic plan for its step-brother MLP ANDX. APU could announce some results of its strategic review. PSXP could announce an IDR simplification. We still have a long way to go in the midstream earnings season; we're still three weeks away from the earnings releases of LNG and OKE.
January is over; see below for some impressive statistics. Midstream and MLPs opened 2019 in a similar fashion to 2018, but even better. It was a low-key rally, meaning it didn't feel like it was accompanied by much enthusiasm for midstream. Maybe because of the terrible 4Q and December price action that numbed midstream investors.
The MLP Index broke a four-month streak of negative performance in a big way. In more than 20 years of MLP Index history, January's performance was good enough for second best ever, just ahead of January 2013 and a few percent behind January 2016.
In the short back-casted history of the Alerian Midstream Energy Index, January was far and away the best month. Midstream has been firing on all cylinders. Several big capitalization U.S. midstream corporations are up more than 20%, the biggest Canadian midstream corporations are up around 15%, and MLPs are on average up around 12%.
I copied the below chart from one I saw posted at the Twitter account of @oddstats, but his chart showed the S&P 500, highlighting that we just had the ninth best month for the S&P 500 in 20 years.
Midstream stock performance following double-digit months in the past is encouraging. Never has such a month been followed by a drop of more than 5% in the next month. Also, 100% of the time three months later was a positive month, which would be April of this year. Seasonal trends are at play in that small sample size; the first month of a quarter is generally strong as it immediately precedes quarterly distribution payments.
Winners & Losers
HESM led all MLPs after reporting solid results and reiterating strong 2019 guidance. GLOP also reported solid results, raised distributions, announced a share repurchase program and removed the top IDR tier. On the downside, MMP and CNXM were lower on 2020 growth uncertainty.
No repeats in the bottom or top 5, although ENBL went from top 5 to bottom 5 week over week. On the YTD leaderboard, HESM joined the top 5, displacing SHLX. Each of the top 3 are up 30%+. On the bottom 5, CNXM and TLP joined the bottom 5.
General Partners and Midstream Corporations
The midstream corporation group outperformed again this week. Cheniere, which has underperformed this year so far, caught up a bit with a strong week. TGE continues to languish, despite a strong quarter of results and 2019 outlook. The market seemed disappointed the full private equity takeout didn't materialize, so there may have been some technical pressure.
On the year-to-date leaderboard, every single stock in the group is positive for the year, and each of the top 5 is up more than 20%. WMB leads a tight bunch at the top of the group.
Gibson (OTCPK:GBNXF) and Pembina (PBA) outperformed in a week where the biggest two players (ENB and TRP) underperformed the group. Venezuela sanctions seem to be a positive for Canadian oil demand, and interest seems to have returned to the Canadian midstream group as a result.
Pembina took over the top spot year to date, followed closely by ENB and TRP, all up nearly 20% in USD terms.
News of the (Midstream) World
We got an eclectic mix of news this week, buybacks, insider buying, VLCC export terminals, oil pipelines, private equity takeovers, asset sales and distribution announcements.
Enterprise Products refreshed its buyback program after exhausting its 20-year old program in 4Q 2018 (press release)
EPD authorized up to $2bn in buybacks, although not very much of that is expected in 2019
Exxon Mobil, Plains All American, and Lotus Midstream announced the formation of the Wink to Webster Pipeline JV and have ordered nearly 650 miles of 36-inch pipe (press release)
The new pipeline system will provide more than 1mm bpd of crude oil and condensate capacity and will be constructed from the Permian Basin to the Texas Gulf Coast
The project is underpinned by a significant volume of LT commitments and is targeted to begin operations in H1 2021
PAA will lead the construction
Blackstone Infrastructure Partners announced the acquisition of 100% interest in Tallgrass Energy's GP and a 44% economic interest in TGE for $3.3bn (press release)
Blackstone is buying the interest from founding private equity sponsors Energy & Mineral Group, Kelso & Co., and Tallgrass KC, an entity owned by certain TGE management
GIC, Singapore's sovereign wealth fund, will be a minority investor in the transaction
Business includes seven NGL terminals in the eastern U.S.
Private player Moda Midstream announced commissioning of upgrades to its terminal in Ingleside, Texas, to enable loading of VLCCs at 80,000 bbls/hour (press release)
Also announced further dock expansion to expand loading capacity to 160,000 bbls/hour
Moda also announced plans for additional 10 million barrels of crude oil storage on site
Pembina (PPL-CA) approved additional expansion of Peace Pipeline which will accommodate incremental customer demand in the Montney area (press release)
Project's expected cost is C$500mm, and it is supported by 10-year contracts with significant take-or-pay provisions
Texas COLT, a JV between Enbridge, Kinder Morgan and Oiltanking to develop a VLCC-capable deepwater oil export terminal off the coast of Freeport, TX, filed an application with the U.S. Maritime Administration (press release)
Planned in-service for the terminal is 2022
Kinder Morgan Executive Chairman Richard Kinder made open market purchases of KMI stock this week totaling 165,260 shares or around $3.0mm (filings)
In addition to raising its distribution, GLOP announced removal of top IDR in exchange for $25mm and also announced a $25mm buyback program (press release)
63 total dividends/distributions announced this quarter, including another 17 or so this week
See below for the full list, including the six distribution cuts, none of which came from midstream MLPs or corporations
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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