Pipeline bottlenecks in the prolific Permian Basin and the very future of the master limited partnership structure weighed heavily on midstream executives' minds during the recent earnings season.
MLPs' narrowed tax advantage over C corporations from the 2017 federal tax policy overhaul, combined with the Federal Energy Regulatory Commission's decision to extinguish a key tax benefit for MLPs, dominated conversations about the model's future. Executives also addressed concerns about insufficient takeaway capacity in West Texas' Permian Basin oilfields and the pipeline outlook for up-and-coming shale plays.
S&P Global Market Intelligence listened to a wide range of midstream operators' earnings calls looking back at the first quarter of 2018 and compiled insightful and colorful comments. Those standout quotes are in italics below.
Taxes, FERC and MLPs
Even though the federal tax overhaul slashed the corporate tax rate from 35% to 21%, Energy Transfer Equity LP
"When you weigh in the taxes drain that you would ultimately have, not just the first couple of years as many partnerships state ... I don't like the answers we're getting," Energy Transfer chief Kelcy Warren said May 10.
FERC's ruling that pipeline MLPs would no longer be able to recover an income tax allowance in their cost-of-service rates, meanwhile, sent Dominion Energy Midstream Partners LP
"Our whole approach on this is going to be there's been a lot of interest and requests to FERC to go ahead and provide clarity," he said April 27. "We think that will springboard the market if they do that and are supportive of the MLP structure long term, and we are going to be patient and wait for that."
Williams Cos. Inc.
"I think the notion is that through a buy-in or a roll-up, there's a payment of all taxes due by the unit holders," Williams CFO John Chandler said May 3. "And I think we're just processing through what that means relative to our specific scenario where 74% of the partnership is owned by a corporation."
The corporate tax rate revision and FERC's policy change have Boardwalk Pipeline Partners LP
"We are evaluating whether remaining a publicly traded master limited partnership is the appropriate structure for Boardwalk," CEO Stanley Horton said April 30.
With record crude oil volumes flowing from Permian Basin wells, Plains All American Pipeline LP
"Some of these things that we're doing right now ... we may not be making much in terms of incremental value to us right now by moving that barrel around these bottlenecks," CEO Greg Armstrong said May 8. "What we're doing is providing service to a customer that says, 'We told you we would move your barrel' and it will, and it's a long-term relationship. ... At the end of the day, it's about the certainty of ... moving that barrel from the wellhead to the best market on a routine basis."
DCP Midstream LP
"What is really important and what we're trying to do here is you want to make sure that you don't get into a place with the DJ Basin where basically the Permian is today," he said May 8. "What we are doing in the DJ Basin is to alleviate all of those in one big fell swoop deep into the next decade."
Midstream operators, meanwhile, are aware that producers are watching the pipeline infrastructure build-out and potential choke points to make sure their own bottom lines are secure.
"It's kind of like having a gallon of water in the middle of the desert. A gallon of water may be worth $5 in a Mountain Valley Water cooler, but if it's in the middle of the desert, it isn't worth anything," Tallgrass Energy Partners LP