Although the near-term outlook for midstream MLPs includes a number of risks that could lead to further downside for the group, we remain bullish on the longer-term growth prospects for US oil and gas production.
The next one to two years could be challenging for throughput volumes on midstream infrastructure, as exploration and production companies jockey for market share and competitive forces squeeze out the excesses of recent years.
But over the long term, reductions in non-OPEC drilling activity and reduced capital expenditures in international markets create an opportunity for short-cycle shale plays to fill the gap and win market share.
For now, investors should focus on the highest-quality names, especially those with reliable cash flow, low costs of capital and extensive asset bases that will create huge competitive advantages over the long term.
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Elliott and Roger on Jun. 30, 2020
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