Here's What Energy Analysts Are Saying About FERC's Tax Ruling

Pipeline stocks plunged after federal regulators ruled that master-limited partnerships can no longer receive a credit for income taxes they don’t pay, even as analysts cautioned that not all companies would be affected by the decision. Wells Fargo said the broad-based selling Thursday was overdone and the industry is likely to appeal. The ruling comes at a harsh time for midstream companies that are already grappling with lack of interest from generalist investors and what Morgan Stanley called a “quagmire” of near-term issues.

Evercore ISI, Timm Schneider

Changes from the Federal Energy Regulatory Commission aren’t expected to hurt pipeline companies owned by so-called C-Corporations, including Kinder Morgan Inc., Oneok Inc., Enbridge Inc. and TransCanada Corp. Conversely, it’s likely to hurt MLPs with large amounts of “cost of service” exposure and particularly those with large amounts of interstate natural gas pipelines. This includes Williams Cos. and the Tallgrass family. Evercore ISI says the sector selloff is likely overstated.

Citi, Eric Genco

Oneok should be “virtually unaffected” by this policy change as the company is structured as a C-Corp, and almost all of its pipelines are under negotiated rates. Citi notes that Oneok has one small gas pipeline, the OKTex, which accounts for about $1.2 million of Ebitda out of $2.3 billion in total for 2018.

RBC, Robert Kwan

RBC’s initial reaction is that the decision will result in lower rates, and therefore lower cash flow for pipelines owned by MLPs. Among the companies that could be affected -- Enbridge has MLP exposure through Enbridge Energy Partners and Spectra Energy Partners, and TransCanada has MLP exposure through TC Pipelines. However, there may be “offsets and opportunities” for Enbridge and TransCanada, including consolidation. FERC’s ruling shouldn’t hurt Western Canada-focused stocks including Pembina Pipeline Corp., AltaGas Ltd, Gibson Energy Inc., Keyera Corp., Kinder Morgan Canada Ltd, and Tidewater Midstream and Infrastructure Ltd.

Cowen, Sam Margolin

Refiners should be “relatively protected” from FERC’s ruling given “over-indexed midstream capacity to storage, terminals and short-haul pipelines.” Margolin notes that refiners have faced challenges with MLP structures and shifting costs of capital. Marathon Petroleum Corp. and Andeavor sold incentive distribution rights back to their MLP subsidiaries over the past several months. Cowen sees any selloff related to FERC’s ruling as a buying opportunity. Margolin also notes that the ruling has nothing to do with Cheniere Energy Partners LP and therefore not an issue for Cheniere Energy Inc.

Bloomberg Intelligence, Brandon Barnes

The new policy applies only to natural gas and oil MLPs at this time. The decision is unlikely to be reversed at any level without another policy change under a different FERC.

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