EC Energy Infrastructure Earnings Rise With Volumes

Last week was a busy week of earnings reports for many sectors, including energy infrastructure. Growing energy sector profitability is feeding through to higher returns to investors. Over the past month the S&P Energy Sector ETF (XLE) has outperformed the S&P by over 9%.

RBN Energy has a good blog post (see Better – E&P Profits Appear Ready To Take Off This Year After Turning A Corner In 2017), highlighting that the 2017 impairments are unlikely to be repeated and that higher oil prices will drive improved operating margins.

Enterprise Products Partners (EPDreported 1Q18 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of almost $1.7BN, 11.5% ahead of consensus. That was a significant beat for such a large, stable business as every segment did better than expected. EPD has a premier position on the Gulf Coast and is a leading exporter of U.S petroleum liquids.On the call, CEO Jim Teague highlighted the value of midstream companies in getting product to the global market. “The name of the game for U.S. production is exports, exports, exports, exports, of crude oil, natural gas, ethane, LPG, petrochemicals and refined products.”Last year EPD trimmed its forecast distribution growth in order to redirect more cashflows into growth projects. Income seeking investors were underwhelmed, but it simply reflected EPD’s response to the changing MLP business model.

1Q18 earnings reported by Oneok (OKE) beat expectations by 4%, driven by strength in their Natural Gas Liquids segment in the SCOOP and STACK play in Oklahoma. Pembina (PPLannounced a 19% year-on-year dividend increase as their Veresen acquisition and assets recently placed into service powered EBITDA growth.

Targa Resources (TRGPreported a solid quarter and positive outlook. They are the leader in providing gathering and processing in the Permian Basin, but even more interesting was the volume growth they saw elsewhere, in North Dakota and South Texas. Tallgrass Energy Partners (TEP) reported on their earnings call increasing throughput on their Pony Express crude pipeline that links the Bakken in North Dakota to Cushing, OK. 1Q18 volumes averaged 290 thousand barrels per day (MB/D), up by 22MB/D on 4Q17, and are expected to reach 350MB/D this month. This shows that it’s not just Permian crude output that is growing, with U.S.production reaching 10.6MMB/D. Record earnings and volumes were reported by a good number of names.

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We are invested in EPD, LNG, MPC, OKE, PPL, TRGP, TEGP (GP of TEP) and WMB

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