According to Energy Transfer Partners CEO Kelcy Warren, making money in pipelines right now is so easy a monkey could do it. That follows a strong earnings season for pipelines, a booming U.S. oil industry, and regulatory relief from the Trump administration.
In The Wall Street Journal, Ryan Dezember reports on these developments, writing:
From a peak in August 2014, the Alerian MLP index lost 63% before bottoming out in February 2016. MLP shares rebounded somewhat alongside rising U.S. oil prices but were dealt a fresh blow in March.
On March 15, the Federal Energy Regulatory Commission announced a ruling that threatened tax advantages for some pipeline-owning MLPs. Shares of some of the country’s largest pipeline operators, including Enbridge Energy Partners LP and Williams Cos., plunged more than 10% that day.
But regulators offered additional details last month around the ruling that alleviated many investor concerns. The sector index has since climbed 6.6%.
Pipeline operators have also broadly benefited from resurgent production in nearly every drilling region in the country and commodities prices that have stabilized amid strong demand. Ms. Followill wrote in a note to clients that third-quarter earnings results were broadly the pipeline sector’s best since 2014.
As Energy Transfer Partners LP Chief Executive Kelcy Warren put it earlier this month: “A monkey could make money in this business right now. It’s not hard.”
Analysts and investors also point to a big reduction in equity issuance by pipeline operators, which in earlier years made a habit of tapping equity markets whenever they needed cash. Such offerings dilute the value of existing shares. Through July, MLPs issued $3.7 billion of equity, compared with nearly $36 billion in 2014, according to Goldman Sachs Asset Management Group.
Pipeline operators have in many cases turned to private-equity firms to make up the difference, selling assets and stakes in major projects to big investment firms, such as Blackstone Group LP,KKR & Co. and Global Infrastructure Partners. Such firms have flocked to the pipeline business because it has historically been a way to invest large sums and receive reliable returns when other deals, such as leveraged buyouts and other infrastructure projects, have become more scarce.
Read more here.
Jeremy Jones, CFA
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