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Quotes of the quarter: Pipeline execs on ballot fears, finding merger 'prince'

During third-quarter earnings calls, oil and gas pipeline executives gave witness to the fall of a Colorado initiative to scale back production that could have jeopardized transportation and gathering and processing operations connected to the DJ Basin. The ballot measure, known as Proposition 112, failed to pass in the Nov. 6 election.

Executives of master limited partnerships also continued to field questions about funneling portions of their quarterly cash distributions to general partners as more companies abandon the MLP structure either through merging with their general partners or rolling up into the parent corporation.

S&P Global Market Intelligence listened to a wide range of midstream operators' earnings calls and compiled the most insightful and colorful comments on these and other issues. The standout quotes are in italics.

Pondering Proposition 112

Many investors worried that the Colorado ballot measure would threaten the midstream sector by requiring their producer customers to place any new oil and gas development at least 2,500 feet from occupied structures and other places, effectively limiting production. David Dehaemers, president, CEO and director of Tallgrass Energy LP's general partner, was not nearly as concerned.

"This whole thing about [Proposition] 112 is, frankly, a little ridiculous," he said Oct. 31. "On [Nov. 7] we'll know whether 112 got voted up or down, and I know that the sun will come up that morning somewhere in the world and that my dogs will still love me, I'm pretty sure ... It's not like the world's going to come to [an] end that day."

Pipeline firms with operations in the state saw their stock prices rebound on Nov. 7 after approximately 57.5% of Colorado voters cast ballots against Proposition 112.


Had Proposition 112 passed, DCP Midstream LP would have had to reconsider its proposed 1.0-Bcf/d Bighorn gas processing plant, according to Chairman, President and CEO Wouter van Kempen.

"I don't think you would want us to [reach a final investment decision on] a plant of this size and of this magnitude ... in light of what we're seeing potentially happening here in Colorado," he told investors Nov. 6.

Williams Cos. Inc.'s chief warned that other states could undertake similar efforts to contain the oil and gas industry's reach.

"If somebody thinks this is going to be limited to Colorado, I would tell you that ... I'm not sure that the move against development in areas is going to be limited to just Colorado," President, CEO and Director Alan Armstrong said Nov. 1. "And I think producers and midstream infrastructure providers are in a different world today than we were five years ago, and we're going to have to learn to deal with the various stakeholders."


Searching for an M&A 'prince'

After emphasizing in August that Energy Transfer LP planned to stay on the sidelines of midstream M&A, CEO and Chairman Kelcy Warren said the company is trying to get back in the game. But even after a structural consolidation eliminated its traditional MLP structure, Energy Transfer is not having much luck.

"We kiss a lot of frogs looking for a prince," he said Nov. 8. "I will tell you, though, we're not finding any deals."

Playing offense on IDRs

As midstream analysts examine Phillips 66 Partners LP's cash payments to its general partner, the MLP's management suggested it would address those incentive distribution rights contributions no sooner than needed.

"We know the way this works. We know the way the math works," Vice President, CFO and Director Kevin Mitchell said Oct. 26. "… We'll get around to doing the IDR restructuring at some point."

The payments an MLP makes to its general partner under these arrangement can total 50% of the partnership's incremental quarterly cash distributions and can take a heavy toll on stock values. Almost 39% of Phillips 66 Partners' distributable cash flow is ending up in the general partner's coffers, according to MUFG Securities Inc.'s midstream energy analyst Barrett Blaschke.


Hess Midstream Partners LP, which just began trading in 2017, is in the clear for now on incentive distribution rights.

"They're currently less than 3% of our [distributable cash flow], and we expect them to remain a small percentage of total cash flows for the foreseeable future given how early we are," said John Gatling, COO of Hess Midstream's general partner. "We're certainly not in [a] defensive position relative to these concerns."

Catering to customers

Booming NGL production in the Permian Basin means Enterprise Products Partners LP is seeing heightened demand for its processing facilities at the Mont Belvieu, Texas, fractionation hub. When it comes to signing away that capacity, the midstream giant is flexible on contract duration, said A. James Teague, CEO and director of Enterprise Products Holdings LLC.

"We take the Forrest Gump approach," he said Oct. 31. "If they want vanilla, we're going to sell them vanilla. If they want strawberry, we'll sell them strawberry."