Feature Article

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.

In the December 19, 2018 issue of Energy & Income Advisor “Oil: It’s Not 2014,” we took a deep-dive look at the global oil market and came to the following conclusion:

“While it’s tough to catch the proverbial falling knife or call an exact bottom in crude, we believe oil is approaching a crucial bottom and will recover into the first half of 2019. Specifically, we could see Brent rallying back over $70/bbl and WTI reaching the mid $60’s by the second quarter of 2019.

In most sectors of the stock market, mergers and acquisitions are almost always viewed as investor friendly: An opportunity to realize a windfall gain, or at least to hook onto a stronger company that will generate better long-term returns.

In the master limited partnership world, however, M&A has recently taken on a darker connotation.

Two years ago, Keystone XL was the only major pipeline project blocked by federal regulators. Today, even projects supported by both the US government and the affected states face the prospect of delays and even derailment in the courts.

Change in the US energy industry has been dramatic over the past decade. Sentiment has shifted from a culture of energy scarcity to one of abundance and the US overtook Russia and Saudi Arabia as the world’s largest oil producer. And, not long ago, you would have been laughed out of a room for predicting that the US would ever export meaningful quantities of oil.