1、Liquids T&S MLPsAfter Mixed 4Q Results for the Group, Still Prefer Plains on Preeminent Permian Position; IDR Overhang Lingers for SomeNorth America Equity Research13 March 2019Despite healthy liquids pipeline expansion opportunities, the group underperformed in2018 (-6% vs AMZ) as not eliminating I

2、DRs and pivoting towards increased self-funding weighed on multiple names in the group. Although the largely kept pace with the AMZs upswing YTD, we believe that those operators that possess leverage to advantaged basins stand best positioned to succeed over the balance of the year. While we believe

3、 the GoM story to be underappreciated, leverage to the Permian and Bakken contributed to the notable 4Q beats for PAA and PSXP, respectively. With S&L 2H19+ estimates muted, limited expectations for the base business despite Permian intra-basin operating leverage, and Capline reversal upside underap

4、preciated, in our we continue to favor Plains within the group for its premier Permian footprint, lack of IDRs and pristine financial flexibility. On the other hand, we move to N OW on SHLX, expecting the IDR burden to weigh on positive re-rating potential. We also move to UW N on NS given lower tot

5、al return potential following significant outperformance YTD, coupled with dilution potential eventual preferred conversion as well as elevated credit agency leverage levels compared to peers, likely leading to increased interest expense overtime.Favor Plains for Permian growth, transformed financia

6、l position. Following another HYPERLINK /research/content/GPS-2905241-0 beat, we continue to favor Plains as our top pick within this group given the advantaged Permian leverage complemented by an improved financial position (4x debt/EBITDA). While Cactus II will near-term Permian growth later year,

7、 the Wink to Webster pipeline could provide later-dated growth, with project potentially leveraging PAAs leading intra-basin pipe and gathering platform. Additionally, we do not believe the market has priced in the 3Q20 Capline HYPERLINK /file/Index?KeyFile=396251931 reversal, where PAAs 54% ownersh

8、ip and leverage to ancillary expansions at Diamond pipeline and storage facilities in St. James and Patoka would quite meaningful to the partnership. Also, despite some producers slowing Permian activity, Plains slightly lowered 2019 highlighting the durability of PAAs position. Finally, with strong

9、 coverage and comfortable leverage PAA can now grow distributions while easily funding the growthbacklog.We appreciate the GoM story, but we believe prompt IDR resolution remains imperative, move SHLX to N from OW. We HYPERLINK /research/content/GPS-2859185-0 continue to believe all MLPsEnergy MLPsJ

10、eremy Tonet, CFA AC(1-212) 622-4915 HYPERLINK mailto:jeremy.b.tonet jeremy.b.tonetBloomberg JPMA TONET J.P. Morgan Securities LLCJoseph R Martoglio(1-212) 622-1741 HYPERLINK mailto:joseph.r.martoglio joseph.r.martoglioJ.P. Morgan Securities LLCCharlie W Barber(1-212) 622-3301 HYPERLINK mailto:charli

11、e.w.barber charlie.w.barberJ.P. Morgan Securities LLCRahul Krotthapalli(1-212) 622-2408 HYPERLINK mailto:rahul.krotthapalli rahul.krotthapalliJ.P. Morgan Securities LLCVinay Chitteti(91-22) 6157-3462 HYPERLINK mailto:vinay.chitteti vi HYPERLINK mailto:nay.chitteti nay.chittetiJ.P. Morgan India Priva

12、te LimitedContents HYPERLINK l _bookmark0 Buckeye PartnersLP (BPL)9 HYPERLINK l _bookmark1 BP Midstream Partners (BPMP)13 HYPERLINK l _bookmark2 Holly Energy Partners (HEP)17 HYPERLINK l _bookmark3 Magellan MidstreamPartners (MMP)21 HYPERLINK l _bookmark4 NuStar Energy (NS)25 HYPERLINK l _bookmark5

13、Plains(PAA/PAGP)29 HYPERLINK l _bookmark6 Phillips 66Partners (PSXP)35 HYPERLINK l _bookmark7 Shell MidstreamPartners (SHLX)39Equity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price ($) Curng PrevCur Price End Dateget PrevEnd DateBuckeye Partners, L.P.BPL US5,266.1134.25Nn/c40.00Dec-1939.00

14、n/cBP Midstream Partners LPBPMP US1,566.1514.95OWn/c20.00Dec-1922.00n/cHolly Energy Partners, L.P.HEP US2,983.1928.40UWn/c30.00Dec-19n/cn/cMagellan Midstream Partners, L.P.MMP US13,784.3560.18Nn/c72.00Dec-1977.00n/cNustar Energy L.P.NS US2,867.2026.74UWN28.00Dec-19n/cn/cPlains All American Pipeline,

15、 L.P.PAA US17,534.3824.14OWn/c31.00Dec-19n/cn/cPlains GP Holdings, L.P.PAGP US6,681.4123.94OWn/c31.00Dec-19n/cn/cPhillips 66 Partners LPPSXP US6,392.6051.51Nn/c60.00Dec-1959.00n/cShell Midstream Partners, L.P.SHLX US4,254.6619.01NOW23.00Dec-1925.00n/cSource: Company data, Bloomberg, J.P. Morgan esti

16、mates. n/c = no change. All prices as of 12 Mar 19.See page 52 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may

17、have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / possessing IDRs can benefit from the significant catalyst of eliminating the IDR burden on fair terms for the L

18、P. Now so more than ever, we believe that possessing IDRs, especially deep in the splits, shrinks an MLPs investor base and weighs on valuation and performance. For SHLX, we see a near-term full IDR resolution as doubtful given the temporary IDR waiver, which likely limits positive re-rating potenti

19、al for some time as more investors actively avoid IDRs. Moreover, based on capital market softness, we further moderate our future drop-down forecasts across the group, thereby reducing forward estimates. As such, despite our view that SHLXs leading offshore platform possesses attractive operating l

20、everage to GoM growth, especially through tie-backs, we move SHLX to a N rating.YTD outperformance reduces our total return expectations for NS; D/G to UW. While we see the leverage-reducing European storage business divestiture growth in the Permian as positives, the significant YTD return 30% (out

21、performing the AMZ by 16%) leaves NS with lower total return potential versus peers, in our view, now that NS yield has compressed inside of other MLPs without distribution growth. Although IMO likely present some upside, NS faces risks in contracting the storage capacity opened after the US Treasur

22、y added PDVSA to its SDN list (ending that business relationship, though PDVSA paid through August). Absent further asset sales, HYPERLINK /site/pr/10065836 rating agency calculated leverage likely remains elevated for an extended period of time. Of note, NS retains the highest leverage in our Liqui

23、ds T&S coverage, when ascribing partial debt credit to preferreds. Moreover, leverage likely sits at 6.0 x on a ratings methodology calculation for both S&P and Moodys, respectively. With a sizeable balance on the revolver and maturities the next couple of years, interest expense could notably step

24、up. Longer-term, conversion of preferred issuances could dilute common equity owners, eating into distribution coverage. With these headwinds and a lower projected return compared to names under our we downgrade our investment rating toUW.Permian production likely to remain robust. In contrast to so

25、me smaller producers, XOM and CVX continue to expect robust Permian production, as highlighted in the recent analyst days. HYPERLINK /research/content/GPS-2936600-0.pdf XOMs Permian production estimates came in notably above estimates while HYPERLINK /research/content/GPS-2935244-0.pdf CVX expects a

26、ccelerating Permian production at a flat rig count. Additionally, an ever increasing backlog of DUCs in the Permian provides a visible growth ramp with completions likely to tick up as incremental takeaway becomes available. XOMs production growth marks a notable advantage for the Wink to Webster Pi

27、peline (20% owned PAA), which reached HYPERLINK /ExxonMobil-Plains-All-American-and-Lotus-Midstream-Proceeding-with-Wink-to-Webster-Pipeline FID in and could move 1mmbpd from the heart of the Permian to the coast by1H21.Figure 1: Permian Production and DUCs5,0005,000Production (mbpd)Drilled Uncomple

28、tedProduction (mbpd)Drilled UncompletedWells3,0003,0002,0002,0001,0001,000Jun-14 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Dec-18ProductionDrilled UncompletedWellsSource: EIA.but takeaway additions progressing to meet it. this Cactus II (670mbpd), HYPERLINK /news/home/20181005005090/en/EPIC-Announces-Plans

29、-Interim-Crude-Oil-Service EPICs line in temporary crude oil service (400mbpd), and Oak (900mbpd) should an influx of Permian takeaway. Although Cactus and EPICs NGL line are still awaiting FERC approval of tariff rates, approval is not needed to go forward with the build out of the pipes and PAA do

30、es not see any impediment to their operations. HYPERLINK /research/content/GPS-2899668-0 EPD the Seminole to crude conversion (200mbpd) to reach full operations by April, further enhancing Permian takeaway capacity after the Sunrise and BridgeTex expansions recently entered service. Given the influx

31、 of takeaway additions coming online in 2H19+, we expect lower marketing margins our coverage universe after 3Q19. For their guidance, assumed spot shipments on BridgeTex and Longhorn only occur in 1Q19, and Plains expects a materially lower S&L contribution in 2020 than in 2019. Inside Permian, MMP

32、 halted its Wink to Crane pipeline, but build the pipe with a partner, enhancing capital Also during earnings, both MMP and MPLX discussed potentially combining their PGC Pipeline with the Wink to Webster line, an option PAA did not rule out. Please see our updated Permian takeaway table on the next

33、page.Midland to Cushing differentials narrow; Midland to Houston widen out post Seminole conversion linefill. reaching an $18 discount in August, Midland crude oil now trades to even with Cushing. importantly for many pipelines, Midland to Houston still provides an attractive spread of$7.50.Figure 2

34、: Midland Differentials50Differential ($)-5Differential ($)Nov-17Feb-18May-18Aug-18Nov-18Feb-19Midland-WTIMidland-MEHSource: Bloomberg.OklahomaCushingNew OklahomaCushingNew Mid-Valley 240mbbls/dBasin 22 450mbbls/d10Wichita FallsColoradoCity12OrlaMidland Wink3Corsicana WTGCrane McCameyCactus I 390mbb

35、ls/d380mbbls/d NederlandAccess140mbbls/LongviewMillennium 65mbbls/d KilgorePermian LV &Extension100mbbls/dMississippiAlabama735mbbls/dLouisiana8NederlandZydeco375mbbls/dSt. James645SealyHouston PortBayou 480mbbls/d9ArthurGardendaleThree RiversEagleFordJV2x800mbbls/d11ChristiBrownsvilleMagellan ET/PS

36、XPPSXP/ANDV/ENBPlains/XOMJVET/MMP/MPLX/DKPlains Energy Enterprise SHLXPipelineOwnerDestinationPipelineOwnerDestinationExpansionsize (mbbls/d)UpsizedCapacity (mbbls/d)In-serviceExpansion MethodSunrise Phase I/IIPAAWichita Falls/CushingN/A3604Q18*Sunrise ExpansionPermian Express IIIETNederland, TX5037

37、04Q18*Pump Ex pansions/ModificationsBridgeTexOMERS/MMP/PAACorpus Christi, TX404401Q19*TBDSeminole ConversionEPDHoustonN/A2001Q19*NGL-line ConversionCactus IIPAACorpus Christi, TXN/A670Late 3Q19Partial Tw inGray OakPSXP/ANDV/ENBCorpus & Sw eeny /FreeportN/A900Year-end 2019GreenfieldEPIC - NGL Line*EP

38、IC/JV PartnersCorpus Christi, TXN/A4003Q19GreenfieldEPIC - Crude LineEPIC/JV PartnersCorpus Christi, TXN/A600Jan-2020GreenfieldPermian Gulf CoastET/MMP/MPLX/DKHouston/NederlandN/A600+Mid-2020GreenfieldWink to WebsterPAA/XOM/LotusWebster/Bay tow n/BeaumontN/A10001H21GreenfieldPotential ProjectsPermia

39、n Express IVETNederland, TX80450TBDPump Ex pansions/ModificationsCactus IIIPAAGardendale (to Corpus)N/A200-400TBDGreenfieldSunrise Phase IIIPAACushing, OKN/A280TBDPartial Tw inGray Oak ExpansionPSXP/ANDV/ENBCorpus & Sw eeny /FreeportTBDTBD4Q20TBDJupiterJupiterMLPThree Riv ers/Brownsv illeN/A1000*4Q2

40、0Greenfield1234455667822910105511Source: Company reports, J.P. Morgan estimates; *Recently placed into service, *Line will run crude temporarily, *Funding secured for 1000mbbls/dIf you build it (and have access to supply), they will come: exports terminals on the coast. As we noted in HYPERLINK /res

41、earch/content/GPS-2859185-0 our 2019 Outlook, the race to add pipelines out of the Permian led to increased demand export terminals on the coast. While US crude oil exports have already grown by over 350% since the start of 2016, should continue to increase as new facilities come online, supported b

42、y incremental takeaway the Permian. Currently in the US, VLCCs can only be loaded at LOOP or through offshore lightering, but several proposed export terminal should change this over the comingyears.Figure 3: Gulf Coast Exports of Crude Oil and Refined Product (mbbls)250,000200,000150,000100,00050,0

43、00-Refined ProductCrude OilSource: EIA.A lot of cooks in the kitchen, but we expect few projects come to fruition. Recently, BPL increased the scope for the South Texas Gateway Terminal to include 6.5-7.0mmbls storage, with in-service expected during the summer 2020. BPL now expects the VLCC capable

44、 terminal to cost $450-500mm. In January, ENB HYPERLINK /media-center/news/details?id=123555&lang=en submitted an application to MARAD Texas a JV with KMI Oiltanking. ENB expects the terminal near Freeport, TX to enter service by 2022, with the ability to load a 2mmbbl VLCC in 24hrs. In February, Se

45、ntinel Midstream HYPERLINK /news-releases/sentinel-midstream-announces-new-deepwater-crude-oil-export-facility-300793301.html announced plans to develop the Texas GulfLink export terminal. Several proposed export terminals, as well as expansions existing suezmax terminals, make an overbuild possible

46、 if all proceed. However, some proposed terminals may be cancelled and building an export terminal requires a lengthy MARAD Moreover, we believe full value chain integration with access to significant supply presents key advantages for the projects backed by large midstreamers. Finally, location can

47、 provide advantages for select terminals. Houston area terminals allow shippers to easily access a deep market, while Corpus Christi area terminals benefit from lower shiptraffic.Table 1: Proposed VLCC Export TerminalsFacility NameOwnersLocation*Proposed ISDSea Port Oil TerminalEPDFreeport, TXTBD (A

48、pproval in 2020)Tex as ColtENB/KMI/OiltankingFreeport, TX2022Brownsv ille TerminalJupiter MLPBrow nsv ille, TX2020Texas Gulf TerminalsTrafiguraCorpus Christi, TXTBDPlaquemines LiquidsTGE/Drex el HamiltonVenice, LALate-2020Harobr IslandCarly le GroupHarbor Island, TXLate-2020TBDMMPHarbor Island/Freep

49、ort, TXTBDSouth Texas Gatew ayBPL/PSXP/MPCIngleside, TXYE2019 (Partial)/Mid-2020Tex as Gulf LinkSentinel MidstreamFreeport, TXTBDSource: Company reports; *Some terminals offshore stated locations.Storage still soft, IMO2020 bring better days. For BPLs segment, average utilization of 80% remained not

50、ably below the 88% achieved in 4Q17, but increased from 78% last quarter. Utilization stood nearly flat QoQ at 82% for MIC. IPLs utilization declined to 68% for 4Q, but mgmt noted an uptick to 78% for January 2019, with weakness still confined to Denmark. Companies frequently discussed IMO2020 and a

51、 slight contango in the market as tailwinds 2019. While utilization could be bottoming in the near contracts renewing at lower rates could continue to weigh on storage results the coming Figure 4: WTI Market Structure and Cushing InventoriesWTIForwWTIForwardPriceSpread($)entories (mmbbls)6entories (

52、mmbbls)420-2-4-6-80Jan-13 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18Source: Bloomberg, WTIForward Backw ardation4Q18 Review4Q18 earnings mixed. GoM leveraged names, SHLX and BPMP fell short on estimates due in-part to lower volumes offshore on well performanc

53、e issues. and PSXP beat with strong S&L and Bakken volumes,respectively.Table 2: 4Q18 Earnings ReviewTickerCompanyRating4Q18 Adj. EBITDA ($mm)Actual Street JPMe Actualvs. StreetDrivers of Beat/Miss vs JPMe1-DayEarnings Review / TakeawaysReturnBPLBuckeye Partners, N$234$234GMT beat the JPMe (+$5mm),

54、andutilization$235In-lineticked up slightly QoQ, but DP&T came in (0%)(0%)slightly low er than ex pected.BPL ex panded the scope of the South Texas Gatew ay Terminalproejct and closed the non-core DP&T and VTTI div estitures in Dec and Jan.4%BPMP BP MidstreamPartners LPOW$44$42BP2 v olumes missed th

55、e JPMe due to a$43BelowWhiting turnaround w hile Mars volumes (-3%)(2%)matched estimates.BPMP re-affirmed 2019 guidance for DCF of $160-170mm and continues to target mid-teens distribution grow th through 2020,helped by a continued GoM ramp.-2%HEPHolly Energy Partners, UW$88$92Refined Products pipel

56、ines missed on lower$90In-linevolumes due to operational issues at HFCs (2%)(-2%)Wood Cross Refinery, offset by beat in Crude.Wood Cross Refinery back running at normal rates, completed truck loading rack in Jan in TX, 2019 Guidance of coverage 1.0 x (ended2018 just below ) and grow th capital progr

57、am of $20-25mm-3%MagellanMMPMidstream Partners, N$381$390Crude oil adj. operating margin miss from low er$371BelowLonghorn rates and higher O&M more than (-3%)(-5%)offsetting Refined Products beat.2019 DCF guidance of $1,140mm came in below the JPMe, butguidance assumes spot shipments on BridgeTex a

58、nd Longhorn only occur in 1Q19, w hich we believ e account for most of thedelta.-3%NSNustar Energy L.P.UW$167$167A miss in storage (on higher OpEx) offset the$165In-linefuel marketing beat w hile Pipelines matched the (-1%)(-1%)JPMe.Euro asset sale reduced leverage, Cactus II connection to SouthTex

59、as System ex pected by 3Q19. 2019 growth capex of $500- 550mm w/ focus on Permian, adj EBITDA of $665-715mm3%Plains AllPAAAmerican Pipeline, OW$815$817S&L drov e the beat on favorable US and$949AboveCanada spreads. Facilities beat in part due to (16%)(16%)crude oil rail activ ity and Transport w as

60、inline.S&L biz 2019 guide of $350mm implies strong 1Q19 w / hedges,2019 capital program of $1.1bn. Wink-to-Webster exp ISD 1H21 and Cactus II ex p partial ISD 3Q19.2%PSXPPhillips 66 PartnersN$289$293Equity earnings beat on higher Bakken Pipeline$309Abovevolumes. PSX refinery utilization helped w hol