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From: [address removed]
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To: [address removed]
Sent: 5/10/2016 5:06:31 A.M. Eastern Daylight Time
Subj: Master Limited Partnerships: Energy MLPs: Monthly sector presentation - Americas - 83pp

 

Jim, Please find a recently published report we thought you would be interested in.

Global Research

Master Limited Partnerships

Energy MLPs: Monthly sector presentation

Industry Overview

Equity  |  10 May 2016

Key takeaways

For the month ended 29 April 2016, the Alerian MLP Index (AMZ) outperformed the S&P 500 by 10.7% on a total return basis. If you would like a pdf version of this presentation with one slide per page, feel free to contact us.

FULL REPORT

AMZ outperforming YTD on strong April performance

In April, MLPs outperformed the S&P 500 by 10.7% versus the historical outperformance during the month of 2.0% (since 1996). This marks the AMZ index's largest monthly outperformance since June 2010. YTD as of 29 April 2016, the relative performance between the AMZ and the S&P 500 has turned positive, with AMZX producing a total return of 6.4% versus 1.7% for the S&P 500 (although MLPs have given back some of the outperformance in May). In our view, the AMZ performance continued to benefit from improving commodity prices and energy high yield (HY) credit markets. In addition, a number of MLPs outperformed even amidst cash distribution cut and corporate action announcements. With that said, we expect MLP sector volatility to largely persist as MLP fundamentals may deteriorate in a lower overall crude oil and natural gas production environment.

1Q16 earnings update

Thus far, all but a handful of MLPs have announced 1Q16 earnings and cash distributions. Notable takeaways include:

• Market reacting positively to distribution cuts and corp. actions - Four MLPs announced cash distribution cuts for 1Q16: AMID, CEQP, NGL, and APLP. In addition, a number of MLPs announced (potential) corporate actions. We note these announcements have largely been well received by investors. In our view, 1Q16 distribution cuts mostly concentrated on MLPs with pressing leverage, structural or fundamental concerns and overall 1Q16 sector cash distributions were largely in-line with the BofAML expectations.

• 1Q16 results broadly in-line, some guidance revisions: We view 1Q16 sector earnings as decent and largely in-line with the BofAML/Street expectations. However, we continue to see moderate 2016 EBITDA and capex guidance reductions at several large cap, diversified MLPs such as KMI, PAA, and ETP. Guidance for gathering and processing (G&P) MLPs remains largely resilient given improving commodity prices.

• MLPs continue to access capital markets: Drop-down MLPs continue to access the public capital markets (traditional and alternative). MPLX recently priced a $1bn convertible preferred offering and PSXP an upsized 11mn offering of common units. Monday afternoon, TLLP priced $700mn of upsized debt offerings.

What's new - regulatory environment, 2018 data

• Increased regulatory scrutiny on midstream projects - We added a slide on the midstream regulatory environment. We believe the increasingly difficult regulatory environment and current pipeline project delays (particularly in the Northeast) could lead to lower medium-term sector capex and slower production growth due to compressed basis differentials.

• 2018 aggregate capex, distribution growth, and equity issuances - We rolled forward our data to 2018. We expect sector capex and equity issuance to trend lower with YoY cash distribution growth of 6% in 2018.

Updated Energy MLP presentation for May 2016

If you would like a pdf version of this presentation with one slide per page, feel free to contact us.

 

Contents

BofAML Energy MLP top picks

MLPs under BofAML coverage

Introduction

MLP performance

MLPs 101

 

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