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Phillips 66 Partners: A Bright Future Ahead - Even Without DAPL

May 02, 2021 3:19 PM ETPhillips 66 (PSX) Stock8 Comments


  • Our valuation model shows that the impact from the potential shut down of DAPL has already been priced into PSXP's recent share price.
  • Strong earnings are expected in FY 2021 as Gray Oak Pipeline and C2G Pipeline reach full commercial operation, complemented by increasing global demand for oil and gas.
  • With an annual dividend yield of almost 10%, robust cash flows, and a low leverage structure based on the current business model, we believe PSXP is reasonably priced with upside potential.
Phillips 66 gas station sign
Photo by StockPhotoAstur/iStock Editorial via Getty Images

The ongoing uncertainty over Dakota Access Pipeline’s future continues to be the spotlight at Phillips 66 Partners L.P. (NYSE: PSXP), which holds a 25% equity interest in the pipeline alongside joint venturers: Energy Transfer (NYSE: ET; operator

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Comments (8)

Stock has done well over the last 7 months, and the distribution is big. I had the impression before the pandemic that this was a very loved stock in this space.
This is from Friday's call:
"...but I do think that as you step back and look at the sort of MLP landscape, a lot has changed over the last seven years or so, which is the duration of PSXP. And so we're now in a position where there is a lot less midstream growth opportunities out there in this environment we're in. You've also lost that cost of capital advantage that usually present at the MLP.

And so the sort of ability to fund through equity is a lot more challenged and on a relative basis when the cost of capital advantage is there, it's just harder to justify projects at the MLP versus say the sponsor doing project them self. So it just puts more of a question mark around that. I wouldn't really tie that to DAPL. DAPL is an added uncertainty for the MLP obviously, but I don't think that the DAPL on its own is going to drive any specific decisions around that."

If you read between the lines they tell you the MLP has outlived its usefulness. My takeaway form the recent 13D filing and the Q1 call is there are two ways this plays out: Scenario A: DAPL stays open and PSX rolls PSXP up for PSX stock. Scenario B: DAPL shuts down, the PSXP distribution gets cut, the unit price goes down, and then PSX rolls it up for substantially fewer shares of PSX stock.
@jimwest23 Yeah that is what I am afraid of too. I wonder if MPLX has the same risk.
@wwn2001 MPLX has a similar risk, but in my estimation it's way bigger with PSXP because of DAPL. If I were a PSX shareholder I'd be optimistic about a temporary shutdown that sinks the unit price. PSX can roll it up cheaper that way and they can spin it like they did the LP unitholders a favor by giving them "reduced risk" with PSX shares in the rollup. What would you do if you were PSX? As far as MPLX... You don't have to worry about the parent company locking you into your losses at rock bottom (upon roll up) they way PSXP has to worry with PSX because there isn't nearly as much DAPL risk. I think MPC will buyback shares and buy up MPLX units with the Speedway money. With MPLX if the unit price goes nowhere you get paid 10% to wait and if it goes up you get 10% and some capital appreciation. With MPLX it's a better risk reward proposition, in my opinion.
Didn't they just post a big earnings loss?
Livy Investment Research profile picture
@wwn2001 they did mostly due to the impairment of their Liberty Pipeline project, but still posted strong distributable cash flows that were comparable to prior periods which I think is a plus despite a turbulent year
oilyolin1 profile picture
Probably add more to my position after May 3. There is a lot of B.S. about the safety of DAPL. N.D. Indian tribes would loose badly needed income since oil from their land continues to flow through DAPL. DAPL is the best built pipeline of all that also are upstream crossings. DAPL has had no issues of spills. DAPL is being upgraded to carry a larger capacity. The standing rock tribe have a record of being trouble and agitating racism. They are sour grapes because they lost their railroad toll bridge on oil cars that cross their reservation. The standing rock lawyers went judge shopping even though several of their lawsuits were defeated by ET. This probably will not end regardless of Boasberg's ruling.
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