巴克莱-美股-石油与天然气行业-2019年三季度美国MLPs与天然气行业预览-2019.10.15-106页.pdf

Equity Research 15 October 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 99.Restricted-Internal U.S.MLPs/U.S.Diversified Natural Gas 3Q19 Preview 3Q likely wont continue trend of record earnings:Year-to-date,weve seen the more diversified,full value-chain type of players posting beats to consensus and record high financial results for a couple of quarters.We dont expect this to spill over into 3Q due to lower NGL prices,narrowing basis differentials across the board as infrastructure was placed into service and ethane rejection that was much higher during the quarter as other NGLs were preferred feedstocks for the petchem industry,which would impact NGL transportation and fractionation throughput.Crude transportation volumes ramped higher throughout the quarter,although the in-service of new Permian pipelines will re-distribute where and how the volumes flow relative to prior quarters while preliminary data seems to suggest crude liftings were flattish to down.Increased amounts of ethane being sold as methane has not helped the natural gas situation as prices continue to be pressured by a bearish storage picture and a warmer near-term weather outlook.We believe the Gulf Coast Express started line-fill sometime in early September,which may have diverted some volumes off of legacy Permian takeaway while those who benefited from spreads will see that moderate,although the more notable impact should be felt in 4Q.Focus on 2020:As we enter the final quarter of the year,we think most of the interest will center around 2020 outlooks and capital spending,especially given concerns about a pullback in production growth.While producer budgets wont be completed for several months,EQM(one-off),ENBL,NS,PAA,LNG/CQP,ATO and UGI typically give forward year guidance in conjunction with 3Q earnings.For other names,we expect the line of questioning to focus on how capex is shaking out for 2020 as it is one of the determining factors in the magnitude and timing of when capital could be returned back to shareholders.The election next year is the other 2020 event that will increasingly be discussed as we move through the next several months as a change in the administration would most likely be a negative event for the sector.Notable variations from consensus(+/-by 2%or more):For 3Q,we are above consensus for CEQP,ENBL,MMP,SMLP,TRGP,WES and below consensus for ALTM,CNXM,DCP,LNG/CQP,NFE,OKE,PAA.For 2020,we are above consensus for MMP,RTLR and below consensus for ALTM,AM,DCP,ENLC,ETRN/EQM,KMI,LNG/CQP,MIC,PAA,TGE,TRGP.Downgrade ENB from Overweight to Equal Weight with$51 price target:With shares outperforming the AMEI index by 1,060 bps since 8/1/19 and 2021 EV/EBITDA re-rating 0.6x higher(which includes full contributions from Line 3R),we think risk/reward is more fairly balanced at this juncture,especially given the continued headline risks around Line 3 and Line 5.In conjunction with this quarterly preview,Christopher Tillett assumes coverage of GEL,GLP,MMP,NS,and SUN.INDUSTRY UPDATE U.S.Diversified Natural Gas NEUTRAL Unchanged U.S.MLPs NEUTRAL Unchanged For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.U.S.MLPs Christine Cho,CFA+1 212 526 8419 BCI,US Theresa Chen,CFA+1 212 526 7195 BCI,US Christopher Tillett,CFA+1 212 526 4823 BCI,US Marc Solecitto+1 212 526 9581 BCI,US Heather Gornik+1 212 526 9237 BCI,US Nathan Rubin+1 212 526 4009 BCI,US U.S.Diversified Natural Gas Christine Cho,CFA+1 212 526 8419 BCI,US Barclays|U.S.MLPs/U.S.Diversified Natural Gas 15 October 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 10-Oct-19 Old New%Chg Old New%Chg Old New%Chg U.S.Diversified Natural Gas Neu Neu Altus Midstream Company(ALTM)EW EW 2.41 4.00 3.00-25 0.10 0.07-30 0.47 0.26-45 Atmos Energy(ATO)UW UW 110.85 101.00 103.00 2 4.33 4.33-4.59 4.60 0 Cheniere Energy(LNG)OW OW 61.34 79.00 83.00 5 1.58 0.84-47 1.58 2.19 39 Enbridge Inc.(ENB CN/ENB.TO)OW EW 47.40 52.00 51.00-2 2.95 2.93-1 2.65 2.64 0 Enlink Midstream Llc.(ENLC)EW EW 7.38 12.00 8.00-33 0.01-0.21-2200 0.54 0.33-39 Equitrans Midstream Corporation(ETRN)EW EW 13.91 24.00 19.00-21 2.12 2.05-3 2.63 2.28-13 Kinder Morgan Inc.(KMI)OW OW 20.24 24.00 24.00-0.97 0.97-1.03 0.98-5 Macquarie Infrastructure Corporation(MIC)UW UW 38.71 40.00 39.00-3 1.82 1.57-14 1.75 1.64-6 New Fortress Energy LLC(NFE)EW EW 17.97 15.00 18.00 20-1.57-1.63-4 0.73 0.60-18 ONEOK Inc.(OKE)EW EW 68.97 72.00 79.00 10 3.02 3.04 1 3.40 3.48 2 Plains GP Holdings LP(PAGP)EW EW 19.92 27.00 24.00-11 1.03 2.08 102 0.73 1.37 88 SemGroup Corporation(SEMG)UW UW 15.99 12.00 16.00 33-0.94-1.25-33-0.66-0.45 32 Tallgrass Energy,LP(TGE)EW EW 19.35 24.00 20.00-17 1.85 1.70-8 1.65 1.33-19 Targa Resources Corp.(TRGP)OW OW 38.71 48.00 49.00 2-0.64-0.90-41 0.29-0.27-193 UGI Corp.(UGI)UW UW 48.42 52.00 50.00-4 2.41 2.33-3 3.03 3.02 0 Williams Cos.(WMB)OW OW 22.74 32.00 28.00-13 0.90 1.00 11 0.93 1.06 14 U.S.MLPs Neu Neu Antero Midstream Corporation(AM)EW EW 7.20 13.00 8.00-38 1.05 0.68-35 1.33 0.74-44 BP Midstream Partners LP(BPMP)EW EW 14.64 15.00 15.00-1.34 1.45 8 1.32 1.48 12 Buckeye Partners LP(BPL)EW EW 41.39 42.00 42.00-2.53 2.61 3 3.29 3.51 7 Cheniere Energy Partners LP(CQP)EW EW 43.93 45.00 46.00 2 2.25 2.10-7 2.45 2.21-10 CNX Midstream Partners,LP(CNXM)OW OW 13.40 18.00 16.00-11 1.99 2.22 12 2.01 2.07 3 Crestwood Equity Partners L.P.(CEQP)EW EW 35.02 41.00 40.00-2 0.71 0.57-20 1.20 1.52 27 DCP Midstream LLC(DCP)EW EW 24.07 33.00 26.00-21 1.20 1.18-2 2.03 0.84-59 Enable Midstream Partners LP(ENBL)EW EW 10.90 15.00 14.00-7 0.96 1.05 9 1.04 0.99-5 Energy Transfer,LP(ET)OW OW 12.42 20.00 20.00-1.52 1.38-9 N/A 1.47-Enterprise Products Prtns LP(EPD)OW OW 27.55 34.00 34.00-2.15 2.20 2 2.16 2.20 2 EQM Midstream Partners LP(EQM)EW EW 31.95 49.00 40.00-18 5.52 4.81-13 5.48 4.27-22 Gaslog Partners LP(GLOP)EW EW 19.69 23.00 22.00-4 1.39 1.40 1 1.66 1.66-Genesis Energy LP(GEL)EW EW 21.57 23.00 23.00-0.58 0.37-36 0.79 0.37-53 Global Partners LP(GLP)UW UW 19.88 18.00 18.00-0.33 1.05 218 0.59 0.98 66 Holly Energy Partners LP(HEP)UW UW 22.53 25.00 23.00-8 1.80 1.79-1 1.87 1.69-10 Hegh LNG Partners LP(HMLP)EW EW 16.02 18.00 17.00-6 1.21 1.18-2 1.51 1.53 1 KNOT Offshore Partners,LP.(KNOP)EW EW 19.46 21.00 21.00-1.67 1.67-2.33 2.31-1 Magellan Midstream Partners LP(MMP)EW EW 65.59 70.00 70.00-4.38 4.29-2 4.96 4.93-1 MPLX LP(MPLX)OW OW 26.80 33.00 33.00-1.44 1.82 26 2.44 1.49-39 Noble Midstream Partners LP(NBLX)OW OW 24.02 38.00 30.00-21 4.45 4.19-6 5.16 5.00-3 NuStar Energy LP(NS)EW EW 27.92 28.00 28.00-1.72-1.14 34 2.41 2.18-10 Phillips 66 Partners LP(PSXP)EW EW 55.21 53.00 56.00 6 4.35 4.03-7 5.67 4.51-20 Plains All American Pipeline(PAA)EW EW 19.17 27.00 24.00-11 1.92 2.29 19 1.67 1.70 2 Rattler Midstream LP(RTLR)EW EW 15.99 21.00 19.00-10 1.13 0.94-17 1.44 1.65 15 Shell Midstream Partners LP(SHLX)EW EW 20.83 20.00 21.00 5 1.73 1.59-8 1.72 1.56-9 Summit Midstream Partners LP(SMLP)UW UW 4.36 6.00 4.00-33 0.93 0.65-30 1.01 0.96-5 Sunoco LP(SUN)EW EW 31.23 32.00 33.00 3 2.73 3.18 16 2.08 2.29 10 Barclays|U.S.MLPs/U.S.Diversified Natural Gas 15 October 2019 3 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 10-Oct-19 Old New%Chg Old New%Chg Old New%Chg TC Pipelines,LP(TCP)EW EW 39.36 42.00 44.00 5 3.66 3.67 0 3.86 3.79-2 Western Midstream Partners,LP(WES)EW EW 23.60 32.00 26.00-19 2.05 1.68-18 2.54 2.17-15 Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|U.S.MLPs/U.S.Diversified Natural Gas 15 October 2019 4 Themes on the quarter Investors worried about a potential administration change in 2020 We have increasingly been fielding calls from investors on what the impact on the midstream sector would be in the event any one of the Democratic candidates are elected into office.The party is generally pretty unfriendly to the oil and gas sector and while each of the candidates have their own agendas,there are a number of things that repeatedly come up.First is a potential fracking ban.A president can ban fracking on federal land and our credit analyst,Harry Mateer,has summarized the implications(“If the Sun Sets on Fracking”,30 Sep 2019,here)by state and investment-grade producers.However,anything beyond that would likely be more difficult for a president to do unilaterally without an act of Congress.Second is cross-border pipes Keystone XL and Line 3R being the most notable projects currently going through the permitting phase.Both pipelines are already being stalled by environmentalists and state regulators despite XL already having received a permit and Line 3R not being required to receive one because its replacing an already existing pipeline,the additional red tape from the federal government would add to the continuous delays that all projects have been seeing for years.Reinstating the ban on crude exports has also been floated and would likely be the most detrimental to the U.S.oil and gas industry of all the proposed energy-related policies.However,as Congress was required to lift the 41-year ban in 2015,we believe that Congressional approval would likely be required to place the restriction back in place.However,its possible that approvals for incremental export projects(especially the ones capable of loading VLCCs)could suffer in regulatory purgatory,which would place a cap on the level of exports out of the U.S.to the facilities that are currently in place.Permian bottlenecks finally alleviated,but question is whats next?Permian infrastructure constraints were alleviated by the end of 3Q with nearly 2mmbpd of Permian-to-Gulf Coast crude pipeline capacity and the 2bcf/d GCX gas pipeline entering service.The Midland-Cushing spread has since flipped to a Midland-premium(averaging+$0.85/bbl thus far in 4Q19)after averaging-$0.30/bbl in 3Q and-$2.20/bbl in 2Q.At this juncture,the key question is what are the secondary impacts on legacy Permian pipes as uncommitted volumes likely migrate over to the new pipes and competitive market dynamics likely result in deflationary pressure on legacy MVC rates when up for renewal(likely in the early/mid-2020s timeframe).Barclays|U.S.MLPs/U.S.Diversified Natural Gas 15 October 2019 5 FIGURE 1 Midland crude price differentials($/bbl)Source:Bloomberg,Barclays Research Companies have acknowledged the competitive market landscape,and general expectations for Permian production growth in the range of+600-700 kbpd y/y would suggest certain uncommitted volumes on legacy crude pipes will be migrating over to the new-build pipes.On the rate side,committed tariffs on the new-build crude lines are meaningfully below the committed and uncommitted tariffs on the legacy pipes,which will likely exert deflationary pressures on tariffs across the basin.Overall,our sense is that the market is mostly cognizant of these risks,but they remain difficult to quantify at this juncture.Specific to PAA,we note that the partnership has indicated its expectation for modest volume erosion on Basin and BridgeTex,but also noted that Sunrise MVCs and Cushing operational needs for Permian barrels should support a baseline level of volumes on Basin.A potential reversal of Centurion could also support the competitive outlook on Basin,while additional volumes flowing into the Permian should continue to move on pipeline takeaway to the Gulf Coast(i.e.BridgeTex,Cactus I/II,Wink-to-Webster,etc.).On the gas side,we suspect the outlook is a bit better given the amount of gas currently being flared and incremental basin production growth.We also note that the recent agreement between Mexico and pipeline operators in the country could further boost exports,providing another possible outlet for Permian gas.Notwithstanding these factors,it wouldnt be surprising to see slight degradation of earnings contributions on legacy Permian gas pipes once Permian Highway and Whistler enter service just given how tight the basin was previously.Like a bad Tinder profile,rejection on the rise Early indications of ethane rejection levels during the third quarter point to a marked increase in rejection volumes q/q.According to EnVantage,EIA data shows July rejection levels of 1.04 mmbpd,which was up from June levels just above 800 kbpd and the 2Q average of between 750-800 kbpd.For the 1.04 mmbpd of rejection the country saw in July,EnVantage estimates 656 kbpd of that was from producing areas west of the Appalachian basin.The full numbers for the quarter will not be available until the EIA releases its production data in the coming months,but using ethane prices during 3Q as an indicator,we expect rejection levels during the entire quarter were sustained at or above the 1.0 mmbpd mark.($5.00)$0.00$5.00$10.00$15.00$20.001Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q192Q193Q194Q19Cushing,OK/MidlandLLS/MidlandHouston/MidlandBarclays|U.S.MLPs/U.S.Diversified Natural Gas 15 October 2019 6 Mt.Belvieu C2 prices averaged$0.1552/gal during the third quarter,which is 20%below the 2Q19 average of$0.1932 and 45%below the 1Q19 average of$0.2838/gal.We believe favorable economics of LPG products were likely a source of downward pressure on ethane prices during the quarter.Normal butane has offered compelling margins in fact,the best amongst typical cracker feedstocks since mid-May across all major global regions(i.e.U.S.Gulf Coast,Northwest Europe,and Asia markets).Butane prices have remained subdued given significant U.S.production and the domestic gasoline markets limited ability to consume the additional butane volumes.As such,butane prices drifted low enough for both European and Asian steam crackers to largely opt for butane over other LPG products,partially contributing to ethanes continued weakness over the same timeframe.Looking ahead,we believe propane prices may also remain relatively more competitive to ethane than in the past given a warmer 2019-2020 winter forecast that suggests the usual uplift in propane prices from peak winter demand may be more restrained this year.It is worth noting,however,that ethane price