Not so long ago, a tanker on fire in the Persian Gulf would have spiked the price of crude oil. But despite the potentially destabilizing standoff between the US and Iran, West Texas Intermediate crude oil still sells for about $10 a barrel less than a month ago.
That’s in large part due to concerns about global economic growth. But generally flat oil prices are also the most compelling evidence yet of the immense changes in global energy politics wrought by the rise of US shale oil and gas. And don’t forget this is happening as Venezuelan output is imploding, Iran is embargoed and unrest is again threatening Libya.
Fair value is always in the eye of the beholder. But it’s clear big money is now seeking value in energy, despite fluctuating oil prices.
The conventional wisdom is the MLP sector is dead money. That’s a mistake for several reasons.
We still smell investor panic in the air. But the trading action of the past couple days is nonetheless encouraging, as the stock market has reversed big intra-day selloffs to finish higher.
Antero Midstream Partners' (NYSE: AM) merger with its general partner is the latest "simplification deal in the MLP sector.
Dominion Energy's (NYSE: D) offer could do a lot to resolve uncertainty surrounding Dominion Midstream Partners LP's (NYSE: DM) future.
Talking Point #1: Over the past 18 months we’ve seen basis differentials rise quite sharply. Those regional pricing differences for crude oil and natural gas are up at least in part to insufficient pipeline infrastructure, including what serves key shale fields like the Permian Basin.
The next round of distribution declarations in our Energy and Income Advisor coverage universe isn’t for another month. But Sanchez Midstream Partners LP (NYSE: SNMP) is at elevated risk to announce a cut sooner, now that its parent and largest customer Sanchez Energy (OTC: SNEC) is for all practical purposes bankrupt.
Unfortunately, we continue to see elevated risk for a number of companies, and particularly for the 13 currently on our Endangered Dividends List. For more on where the risk lies at individual midstream energy companies and MLPs, see the comments column in our now updated MLP Ratings table, including analysis of first quarter results, distribution coverage and debt-to-EBITDA figures and prospects for potential roll-up mergers. It’s posted on the Energy and Income Advisor website under the “Portfolios” tab.
It’s been a little over a year since FERC shocked the MLP industry with its decision to disallow a significant tax-related item in cost-of-service rates for interstate pipelines. That ruling, coupled with the big drop in oil prices last fall sent the industry benchmark Alerian MLP Index tumbling to its lowest levels in a decade.
The cheapest source of expansion funds is always internally generated cash. So it’s no great surprise that many energy sector management teams are still choosing to “right size” dividend distributions, rather than issue new debt and equity into what remain largely hostile capital markets.
Elliott and Roger on Jul. 1, 2019
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