Tulsa MLP Conference. November 12, 2015

Transcription

1 Tulsa MLP Conference November 12, 2015

2 MLP Valuations are Down, but Still Robust AMZ S&P Energy G&P Natural Gas T&L Oil T&L Refined T&L Terminals & Storage Large Cap Integrated MLP Total Return 2012 to Current MLP Total Return 2015 YTD Enterprise Value / EBITDA 2015E 2016E 14.3x 13.9x 11.4x 12.1x 16.1x 12.7x 11.0x 9.9x 12.9x 11.4x 14.8x 10.1x Natural Gas T&L Large Cap Integrated Refined T&L Terminals & Storage Oil T&L G&P Median Current to 2017E 7% 6% 12% 7% 10% 7% Distribution Growth Sources: Company filings and FactSet as of 11/6/2015. Note: G&P peer group includes AMID, AM, CNNX, CMLP, DPM, ENBL, ENLK, EQM, MWE, MEP, PTXP, RMP, SXE, SMLP, NGLS and WES. Natural gas T&L peer group includes BWP, CQP, NKA, TEP, TCP and WPZ. Oil T&L peer group includes BKEP, GEL, JPEP, PAA, RRMS, SHLX and SXL. Refined T&L peer group includes BPL, CAPL, DKL, GLP, HEP, MMP, MPLX, PSXP, SGU, SUN, TLLP, VLP and WNRL. Terminals & Storage peer group includes ARCX, DM, MMLP, NS, PBFX, SRLP, TLP, USDP, VTTI and WPT. Large Cap Integrated peer group includes EEP, ETP, EPD, OKS and SEP. 2

3 # of Midstream MLPs Current Midstream MLP Yields Current Midstream MLP Yields Alerian MLP Index Average Yield 30 1/1/2015 Yield Current Yield Current AMZ Yield (1) : 7.7% 9.9% % 9.3% Current Yield of 7.7% % 7.9% 7.4% 6.8% 6.2% 6.8% 6.0% 6.8% Median: 6.8% 6.3% 6.6% 6.2% 5.9% 5.6% <3% 3% - 5% 5% - 7% 7% - 9% 9%- 11% >11% Current Distribution Yield Source: Company Filings and FactSet as of 11/6/15. Current <3% Includes: SHLX, DM, PSXP, VLP; 3% - 5% Includes: BWP, EQM, AM, SGU, MPLX, MMP; 5% - 7% Includes: TLLP, TEP, EPD, WNRL, RMP, SEP, VTTI, WES, CQP, SXL, GEL, HEP, TCP, DKL; 7% - 9% Includes: WLKP, BPL, PBFX, OCIR, ENLK, CNNX, SUN, APU, EEP, TLP, SRLP, CAPL, MWE; 9% - 11% Includes: GLP, NS, PAA, WPT, ETP, RRMS, GLOP, WPZ, BKEP, SPH, FGP, OKS, CLMT, ARCX; >11% Includes: ENBL, DPM, NGLS, SMLP, ARLP, NGL, USAC, USDP, JPEP, RIGP, MMLP, HCLP, MEP, UAN, CELP, ALDW, AZUR, SXCP, SXE, AMID, CMLP, NTI, SDLP. (1) AMZ yield as of 10/30/ YTD 3

4 Transaction Volume ($ Bn) # of Deals Midstream M&A Activity Overview ($ in billions) Market Themes Sector Transaction Volume (1) E&P companies continue to consider midstream monetization alternatives although slower than expected at the beginning of 2015 Large MLPs and private capital continue to be aggressive G&P Pipeline Diversified Terminals / Storage Number of Deals $200 $150 $100 $50 $0 30 $ $20 $23 20 $7 28 $16 53 $53 48 $74 62 $44 51 $51 $165 $ YTD Average Midstream Forward EBITDA Multiple Paid Relatively less MLP access to capital may lower valuations 8.8x 10.3x 11.0x 9.5x 8.3x 9.9x 10.6x 10.6x 10.8x 11.1x 11.2x Affiliate consolidation continues Targa; Crestwood; Kinder Morgan Source: Dealogic, IHS Herold as of 11/6/2015. (1) Includes corporate and asset transactions. Deals with disclosed value of >$50 million. Reflects transactions where United States listed as primary country. 4

5 Meaningful Transactions Are Still Getting Done ($ in millions) A B C D E F F Date Transaction FY1/NTM EBITDA Purchase Price + Announced Acquiror Seller(s) Assets Value ($MM) Multiple CAPEX/Peak EBITDA 11/3/2015 Targa Resources Corp. Targa Resources Partners, LP Acquisition of the public MLP by the public general partner $11, x - 9/28/2015 Energy Transfer Equity Williams Companies, Inc. Diversified Large-Cap Infrastructure company with natural gas and NGL gathering, processing and interstate transportation assets across the United States. 37, x - 8/3/2015 NextEra Energy Partners, LP NET Midstream, LLC Seven natural gas pipeline assets in Texas 1, x 10.5x 7/16/2015 Genesis Energy, L.P. Enterprise Products Partners L.P. 9 crude oil pipeline systems with 1,100 miles of pipeline; 9 natural gas pipeline systems with 1,200 miles of pipeline; and ownership interests in 6 offshore hub platforms 1, /13/2015 MPLX LP MarkWest Energy Partners Gathering, processing and transportation of natural gas; the transportation, fractionation, storage, and marketing of natural gas liquids (NGL); and the gathering and transportation of crude 21, x (1) 12.8x oil 6/11/2015 Global Infrastructure Partners Hess Corporation 50% stake in Hess's Bakken midstream assets 2, x (2) 14.7x Pioneer Natural Resources / 6/1/2015 Enterprise Products Partners LP Reliance Holdings USA 5/29/2015 Ferrellgas Partners LP Bridger Logistics, LLC ~460 mi. of natural gas gathering pipelines, 10 gathering plants, 780 MMcf/d of treating capacity and 119 Mbbl/d of condensate stabilization capacity in the Eagle Ford Crude oil logistics, including trucking, terminaling, pipeline, rail and maritime, across many U.S. basins 2, x 8.0x x - 5/5/2015 Crestwood Equity Partners LP Crestwood Midstream Partners LP Merger of the two partnerships into one publicly-traded partnership 6, x - 5/1/2015 GE Energy Financial Services & Caisse de depot Southern Star Central Corp./ Morgan Stanley Infrastructure Over 5,800 miles of natural gas pipelines and 47 billion cubic feet of natural gas storage in eight states (3) 4/6/2015 Williams Partners LP EV Energy Partners 21% stake in gathering, processing, fractionation and storage assets in Ohio x 9.2x 3/19/2015 Howard Energy Partners Southwestern Energy Company NE PA gathering and processing assets x - 2/2/2015 EnLink Midstream Partners Coronado Midstream Holdings 270 mi of gathering pipelines, 175 MMcf/d of processing capacity and associated compression in the Permian (4) x 7.5x 1/26/2015 Energy Transfer Partners Regency Energy Partners LP Assets across a diversified number of basins 17, x - 1/22/2015 Kinder Morgan Inc Hiland Partners LP Diversified assets in the Bakken 3, x 10.0x 12/16/2014 Dominion Midstream Partners LP SCANA 10/28/2014 Western Gas Partners LP Nuevo Midstream LLC Carolina Gas Transmission, the owner and operator of 1,500 FERC-regulated interstate natural gas pipeline in SC and GA 300 MMcf/d cryogenic processing, 275 mi of gathering pipeline, 4 compressor stations in the Permian x 10.5x 1, x 8.5x Median $1, x 10.0x Mean $6, x 10.2x Source: Company filings; Herold; Dealogic as of 11/04/2015. (1) Total investment includes $1.5 billion of annual capital projected over each of the next 5 years. (2) Total investment includes $200 million of annual capital projected over each of the next 5 years. (3) Total investment takes into account $400 to 600 million in capital expenditures. (4) 2018 multiple including future growth capital investments. 5

6 What s Up with the MLP Market? [MLP] distributions and dividends are not sustainable via internally-generated, traditional free cash flow generation, as measured by cash flow from operations less all capital spending. Barrons, 9/28/2015 This self-perpetuating, debt-infused bubble is coming to an end, in our view, now that bankers are re-evaluating price decks and borrowing capacity and as the energy markets swoon. Barrons, 9/28/2015 Most master limited partnerships and midstream corporates may have to make the difficult decision to either cut their distributions/dividends or suspend growth plans in them altogether. Barrons, 9/28/2015 Falling stock prices would then weaken credit quality, and a bust would truly ensue, as shares finally revert back to traditional, tried-andtrue free cash flow valuation processes, as opposed to one based on a financially-engineered payout. Barrons, 9/28/2015 In the past year, 13 MLPs nearly all exploration and production companies have cut the size of their payouts, according to Credit Suisse Group. Payouts for the industry expanded each year between 2010 and 2013, but the growth clip fell to 6% last year, and is forecast to fall again to 5.9% in 2015 and 5.8% next year. Wall Street Journal, 10/18/2015 Investors have correctly started to question these long-term growth forecasts not just for the dividend itself, but for the ability of the company long-term to grow assets. Wall Street Journal, 10/18/2015 Targa Resources (NYSE:TRGP) announced its purchase of Targa Resources Partners (NYSE:NGLS) that follows an industry trend of moving away from the MLP structure. The MLP, Targa Resources Partners, will be rolled up under the C-Corporation structure of Targa Resources in this stock-for-unit deal. SeekingAlpha, 11/3/2015 As Targa Resources Partners has reached the "high splits" of its IDR payments, the roll-up will eliminate these and significantly lower its cost of capital. SeekingAlpha, 11/3/2015 The deal will provide Targa Resources the potential to meaningfully grow its dividend as it takes the same path that Kinder Morgan chose in SeekingAlpha, 11/3/2015 As Kinder Morgan MLPs were structured, incentive payments to the general partners were growing bigger and making equity more costly. Other MLPs haven't yet matured to this stage and some are structured differently. There are currently about 120 publicly traded MLPs, up from about 70 just four years ago, and they are a long, long way off having to contend with the situation that Kinder [Morgan] found itself in. Wall Street Journal, 8/13/2014 The move makes sense for Kinder Morgan in a way that it wouldn't for others. The company's cost of equity is substantially higher than that of most of their peers because of its incentive structure. Wall Street Journal, 8/13/2014 The deal is positive for investors, and not a harbinger of the end of the structure. Wall Street Journal, 8/13/2014 Source: Barrons, Wall Street Journal, SeekingAlpha. 6

7 Top 5 Reasons the MLP Market is Here to Stay 1. No entity level taxes is a very good thing 2. Track record for building energy infrastructure in North America although access to capital is important 3. GP control allows investors to be able to invest directly in significant midstream stories Shell, Marathon Petroleum, Anadarko Petroleum, Phillips Long-term performance speaks for itself The Standard & Poor s MLP Index returned 28 percent annually over the past five years, compared with 22 percent for the broader 500-stock index (Bloomberg) Over the past 15 years, MLPs have outperformed the S&P 500 with a cumulative gain of over 938%, a compound annual return of 17%, versus 157% for the broader market, a compound annual return of less than 7% (OppenheimerFunds) MLPs generated 17% annualized returns over the past fifteen years, not because of any one-time event or change in relative valuation, but by consistently growing their cash distributions over that period by approximately 7% per annum (OppenheimerFunds) 5. There are still A LOT of energy infrastructure assets to be built IHS Global estimates that oil and gas infrastructure investment over the next 12 years ( ) may reach $890 billion, which they deem to be a base scenario (Forbes) 7

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