ORLANDO, Fla.—Things are looking up for the harried midstream sector, two senior executives with careers that have persevered through multiple energy cycles, told attendees at the MLP & Energy Infrastructure Conference on May 23.
“The MLPs have gone through a tough cycle but they have turned around,” Randy Fowler, president of Enterprise Products Partners LP (NYSE: EPD), said in a panel discussion with EnLink Midstream (NYSE: ENLK) President and CEO Michael Garberding. “We’re in a rehabilitation phase now; it’s important not to overreact,” Fowler added.
Garberding agreed, adding midstream managers “need to have a long-term strategic plan and be ready to turn that strategy into short-term execution” as business improves.
Tim Fenn, managing partner with Latham & Watkins LLP, hosted the wide-ranging discussion with the executives. The conference is an enhancement on the Master Limited Partnership Association’s long-running MLP investor conference. This year’s event invited non-energy MLPs involved in energy infrastructure, including an LPG tanker operator, a firm specializing in cell phone tower and billboard locations and a wood-chip supplier that makes renewable boiler fuel for power plants.
The recent spate of MLP-to-C-corp conversions brought extensive commentary from both panelists. Fowler said the partnership structure has served Enterprise well, adding “we’re viewing things from big operational metrics and bit financial metrics. In our business [an MLP] offers us more flexibility.”
Despite the allure of lower corporate taxes, it’s important to remember “not one corporate tax return has been filed yet at the 21% rate,” he added. It might be wise to give things some time and see what happens. “This is a one-time election—you have to be very careful,” Fowler said.
Garberding said the midstream organizational structure “is not a one-size-fits-all. It depends on what’s right for your business,” adding EnLink also has done well with the MLP model.
Like Fowler, the CEO emphasized “you should think long term for your stakeholders. There’s still a lot of noise in the marketplace” thanks to tax reform and the Federal Energy Regulatory Commission’s recent ruling on tax accounting for certain pipeline operators.
Fenn asked the executives what they see ahead for midstream M&A activity vs. organic growth. Fowler said Enterprise prefers bolt-on transactions “that extend out from what you have.”
Garberding emphasized the importance of listening to and working closely with upstream customers. He noted Devon Energy Corp. (NYSE: DVN), one of EnLink’s biggest customers and the majority unit holder in EnLink’s general partner, has been “very helpful” in working with EnLink to properly serve Devon’s big Showboat project in Oklahoma’s Stack play.
“It’s critical to invest the right amount of capital at the right time” to bring on any producer’s big development, he added.
Fenn noted that Investors seem to be returning to the midstream after a rough couple years—but which investors? Is it retail, institutions or MLP specialists?
“It’s all of the above,” Fowler said. “It’s important to emphasize more disciplined growth.”
Garberding noted investors’ focus on producers’ returns and cash flow, “and that’s coming down to our space. They’re looking at yield and other metrics.”
Following up the discussion of yield, one questioner from the audience asked if Enterprise or EnLink will be repurchasing units?
“We’re not there yet,” Fowler replied, adding investors are asking “let me see it” when firms say they are emphasizing returns.
“We haven’t looked at it,” Garberding said.
Another questioner wanted to know if the executives could go back in time by a decade, what would they do differently?
“We would borrow a lot of money and invest heavily in the Permian!” Garberding replied to laughter from the audience.
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