MLP earnings season has been very positive for the vast majority of companies. Volumes across many pipeline systems held up better than many observers expected. The rig count has increased for 7 straight weeks as producers are starting to drill again. Many of these rigs have been placed in the Permian Basin in Texas, as it’s very profitable in this basin for many producers at the current oil prices. The MLPs that operate in the Permian also fared well during earnings calls. On the natural gas side, the Marcellus and Utica shales also showed strong volume growth for several of the companies we are invested in. The recovery in natural gas liquids (NGLs) prices was discussed by many MLP management teams and they believe NGL pipelines will see strong volume growth and increased earnings over the next several years. Much of the NGL recovery will be driven by increased ethane pricing due to numerous petrochemical facilities coming on-line that will significantly increase demand for ethane.
Another notable development is that several MLPs have entered into joint ventures on major pipeline projects. This helps fund other projects and also improve the balance sheet, which the market has viewed as favorable. Another benefit of joint ventures is that it helps prevent overbuild in certain shale plays as other projects are cancelled. The largest deal occurred when Sunoco Logistics and Energy Transfer sold a 36.75% stake in their Bakken pipeline for $2B. This move repaired balance sheets and a competing pipeline was cancelled as a result of the deal. All in all, we view this earnings season as very positive.