Pipeline Earnings Continue Positive Trend

SL Advisors Talks Markets
SL Advisors Talks Markets
Pipeline Earnings Continue Positive Trend







/

Recent 3Q22 earnings reports for pipeline companies have been confirming the predictable nature of their business models. Dividend hikes have been common. Growth capex generally remains cautious.

Cheniere’s $2.8BN in EBITDA was close to consensus, and they reaffirmed their full year 2022 guidance of $11.25BN having revised it higher three times this year. They paid down $1.3BN in debt. The Stage 3 expansion of the Corpus Christi LNG export facility is on track with first shipments expected in three years. Eventually more US natural gas will be available to buyers in Europe and Asia, but construction takes longer than popularly believed.

Cheniere also noted that Asian buyers continue to negotiate 20-year contracts while European buyers are not. Countries like Germany are relying on being able to buy what they need in the spot market to avoid long term commitments and maintain their goal of reducing fossil fuel use. It’s another example of the EU pursuing green ambitions while developing countries prioritize growth, which relies on increased energy consumption.

Morgan Stanley believes Cheniere is on track to deliver at least $25 per share in Distributable Cash Flow within several years, a >14% yield based on the current stock price.

Williams reaffirmed their previous EBITDA guidance of $6.1-6.4BN with bias towards the upside. They’re also planning to invest in a Carbon Capture and Sequestration (CCS) facility in the Haynesville. The poorly named Inflation Reduction Act raised the 45Q tax credits for CCS, and Williams is one of several companies planning to take advantage. They raised their dividend by 3.7%.

Energy Transfer missed expectations in part because of a one-time $128MM legal expense related to a prior class action suit and 130MM hedging loss caused by difference in timing recognition between inventory and hedge instrument. Setting these two items apart, their results were in line with consensus. They are targeting Debt:EBITDA leverage of 4.0 by the end of next year – still a little higher than peers which we estimate will be around 3.5X by then. Management now expects to make a Final Investment Decision (FID) on their Lake Charles LNG export facility during 1Q23. 2022 EBITDA guidance was raised for the third time this year, now $12.8-13.0BN.

Enbridge, North America’s biggest pipeline company by market cap ($80BN), reported 3Q EBITDA of $3,758MM, 4% ahead of expectations. They raised their dividend by 3%. Enbridge has a C$17BN (US$ 12.75BN) backlog of growth projects, up from C$13BN the prior quarter. This includes C$3.6BN to expand the southern segment of their British Columbia gas pipeline system. This is a response to strong demand from LNG customers presumably in Asia. New England and California are impeding natural gas supply to their citizens, while Canada is preparing to increase exports.

Interestingly, Enbridge’s Renewable Power Generation segment reported $113MM, 32% ahead of JPMorgan’s estimate.

Enterprise Products Partners reported $2,258MM, meeting expectations, and raised their distribution 5.6%.

Plains All American reported $623MM vs expectations of $562MM. They raised their distribution by 23% and expect 10% growth going forward.

Results like these should continue to attract investors because of steady and growing cash flow generation. Meanwhile, President Biden reaffirmed that he is against any oil drilling just days after criticizing oil companies for not producing more oil. Even Democrats must agree the White House has no visible energy strategy.

The Financial Times published an interview with EQT CEO Toby Rice in which he said, “Sending US LNG to China and India is going to be the biggest decarbonizing thing we can do as a country,” Rice is promoting coal to gas switching as the most effective way to curb CO2 emissions. We believe this represents a big opportunity for US natural gas investors.

Finally, the US Energy Information Administration (EIA) reported that capacity of Combined Cycle Gas Turbines (CCGT) will reach 24% of total US power generation by year’s end. Last year CCGT generated 32% of our electricity, ahead of coal (22%) and nuclear (19%). CCGT’s share of actual power generation is bigger than their share of capacity because solar and wind typically operate at only 20-35% of their capacity. It’s not always sunny and windy.

Around a quarter of US coal-burning power capacity is scheduled to be retired by 2029, continuing a trend that has been the main source of falling CO2 emissions over the past couple of decades.

Midstream energy infrastructure is well placed to support the continued growth in global demand for US natural gas.

 

Print Friendly, PDF & Email
SL Advisors Talks Markets
SL Advisors Talks Markets
Pipeline Earnings Continue Positive Trend
/

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.

Print Friendly, PDF & Email
0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.