Skip to Content
Stock Strategist Industry Reports

Midstream Liquidity Concerns Overblown

Operational results will worsen, but most companies should muddle through.

Mentioned: , , , , , , , , ,

Our analysis of midstream oil and gas companies’ liquidity and investor payouts suggests a few areas for concern, but broadly, we think the industry can muddle through. Wide-moat companies such as Enterprise Products Partners (EPD), Magellan Midstream Partners (MMP), Plains All American Pipeline (PAA), Cheniere Energy (LNG), and Cheniere Energy Partners (CQP) remain well positioned. Gas-focused names such as Energy Transfer (ET) and Kinder Morgan (KMI) should also do well. Williams (WMB) will need to proactively address its maturity issues, given its lack of excess cash flow, but the resilience of its operations should provide a buffer.

On the negative side, we think some entities, including MPLX (MPLX), DCP Midstream (DCP), Energy Transfer, and Oneok (OKE), are under substantial pressure by investors to reduce payouts to more aggressively address high leverage or other business priorities. To be clear, we think the payouts are financially supportable, given our expectations for business results and the entities’ balance sheets, but this environment is potentially offering management sharply higher returns elsewhere, particularly around repurchasing highly discounted debt. We think MPLX, Oneok, and Williams could prioritize upcoming maturities over their payouts, given their lack of near-term excess cash flow generation if further culling near-term capital spending plans is not feasible. For DCP and Energy Transfer, we think the focus on preserving liquidity during a period when near-term results will be more challenging than at any time in the energy markets over the last few decades could force a reckoning.

Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.