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加入“起点财经”微信群。。North America Equity Research
08 January 2019
Jeremy Tonet, CFA
(1-212) 622-4915
jeremy.b.tonet@jpmorgan
Fully integrated Permian NGL platform on the horizon, underperformance
overdone; upgrade TRGP to OW. In our Permian NGL report, we noted that
TRGP will quickly grow into a fully integrated player as well with the new Grand
Prix pipeline complementing the leading Permian G&P footprint, expanding
fractionation position, and LPG export capacity. Among our coverage universe,
TRGP possesses the greatest Permian NGL leverage, one of the most attractive
themes, especially given visibility to a rapid Grand Prix ramp fed by the numerous
TRGP processing plants coming online over the next few years. Equity financing
remains the key hurdle for TRGP and withthe midstream term loan market
improving, we believe that TRGP will be able to monetize a portion of the Badlands
to provide the mainbridging item as EBITDA materially ramps over the next several
years.Finally, we see TRGP’s ~8.5x 2021 EV/EBITDA multiple as more than
compensating for these risks.
Permian growth surge brings robust NGL supply with it. Leveraging our E&P
and Integrated teams’ models for our bottoms-up supply forecast, we see the
potential for at least mid-teens annual Permian NGL production growth, with the
potential for upside depending on ethane rejection levels. Even with lower WTI,
advantaged basin economics should continue to drive strong activity levels across
the Permian (currently almost 500 rigs). As such, we see current crude oil pricing,
still well above break-evens, ultimately driving strong associated natgas and NGL
production levels. We believe this robust production growth will continue to
necessitate material midstream growth capex deployment, with downstream
requirements similarly robust.
Table 1: North AmericaKey Ethylene Projects
Source: Bloomberg, JPM Chemicals Team.
Table 2: USGC Greenfield Fractionation Facilities Announced
Table 3: USGC Brownfield Fractionation Facilities
Source: Company and Partnership reports.
NGL bottlenecks to clear in 2Q19, but frac constraints could persist well into
2020.While NGL pipeline utilization stands quite high today, capacity constraints
should be fully alleviated by 2Q19 when Shin Oak and Grand Prix enter service.
CompanyProjectEthylene Capacity(billion lbs/year)Ethane Consumption (MBPD)*LocationStart-up
Dow ChemicalGreenfield3.3184Freeport, TexasJan-18
Chevron Phillips ChemicalGreenfield3.3184Cedar Bayou, TexasMar-18
ExxonMobilGreenfield3.3184Baytown, TexasJul-18
Incremental Pull in 2018252
IndoramaRestart0.9324Lake Charles, La.1Q19
ShintechGreenfield1.1028Plaquemine, La.1Q19
DupontExpansion0.205Orange, TX1Q19
SasolGreenfield3.3184Lake Charles, La.1H19
Formosa PlasticsGreenfield2.6568Point Comfort, Texas2H19
Axiall & Lotte ChemicalGreenfield2.2156Lake Charles, La.4Q19
Incremental Pull in 2019265
Dow ChemicalExpansion1.1028Freeport, Texas2020+
ShellGreenfield3.3184Monaca, PA2022+
Total/Borealis/NovaGreenfield2.2156Port Arthur, Texas2022+
Chevron Phillips ChemicalExpansion1.1028Cedar Bayou, Texas2022+
Nova ChemExpansion0.9524Sarnia, Canada2022+
Exxon/SABICGreenfield3.97101San Patricio County, TX2022+
Formosa PlasticsGreenfield2.6568St. James Parish, LA2022+
ExxonMobil ChemicalExpansion1.1028Baytown, TX2023+
PTT/DaelimGreenfield3.3184OH2023+
Formosa Plastics (Phase II)Expansion2.6568St. James Parish, LA2023+
Incremental Pull in 2020+569
Total42.71,086
*90% Utilization Rate
CompanyLocationFacilityCapacityIn-Service
ETMont BelvieuFrac VI1501Q19
TRGPMont BelvieuFrac VI1002Q19
OKEMont BelvieuMB41251Q20
EPDMont BelvieuFrac X1501Q20
ETMont BelvieuFrac VII1501Q20
TRGPMont BelvieuFrac VII1101Q20
EPICCorpus ChristiEPIC - I1101Q20
TRGPMont BelvieuFrac VIII1102Q20
EPDMont BelvieuFrac XI1502Q20
PSXSweeneyFrac II/III3004Q20
PermicoCorpus ChristiEl Centro3004Q20
OKEMont BelvieuMB51251Q21
TRGPMont BelvieuFrac IXTBDmid-2021
CompanyLocationFacilityCapacityIn-Service
EPDAscensionTebone Restart301Q19
ENLKEuniceExpansion102Q19
ENLKPlaquemineExpansion202Q19
EPDCorpus ChristiShoup Expansion253Q19North America Equity Research
08 January 2019
Jeremy Tonet, CFA
(1-212) 622-4915
jeremy.b.tonet@jpmorgan
However, the fractionation bottleneck downstream will not be resolved soon.
Highlighting downstreamtightness, ethane prices jumped 50% last September and
industry reports cited significant increases in spot fractionation prices. Though
ethane prices and frac rates have since moderated, we see the potential for an
imbalance again in 2019. According to the JPM chemicals team, ~10bn pounds of
ethylene capacity is likely to be added in 2019, which represents ~265mbpd of new
ethane demand at 90% operating rates. Assuming a 50% y-grade mix, new
fractionators could add 125mbpd of purity ethane, while debottlenecking could
potentially add ~40mbpd, depending upon pipeline connectivity. With incremental
ethane demand from light-end crackers likely outpacing incremental
fractionator supply in 2019, we see a positive skew in NGL midstream service
pricing power, as well as ethane pricing risk and optimization opportunities.
Moreover, the end of crackers moderating inventory levels heading into year-end
could spur additional demand.
Asset sales could fast-track 2019 deleveraging process for WMB and TRGP.
Giventhe attractive multiples on recent asset sales to PE (e.g., Four Corners)and
generalist investors’desire forlower leverage, we see a compelling opportunity for
midstream operators to deleverageby selling non-core assets. Moreover, our
investor conversations indicate a clear desire from many generalist investors to see
lower leverage before reengagingwith midstream. WMB holdsseveral non-
contiguous assets thatcould be sold for reinvestment and help fast track leverage
towards4.2x. Similarly,we believe that TRGP monetizinga portion of the Badlands
could serve as a key catalyst for alleviating investor concerns regarding equity
funding and leverage. We have now baked a partial sale into our TRGP estimates.
Earnings table. 3Q18 results nearly beat across the board. OKEand TRGPled the
way, benefitting from robust NGL logistics themes. WMBsaw another quarter of
strong NE volumeswhile MICrealized strong CP&E results.KMImatched
expectations.
Table 4: 3Q18 Earnings Review
Source: Bloomberg, Company reports, J.P. Morgan estimates.
2018/19 guidance. Most c-corps in this report now expectto meet or exceed the top
end of 2018 financial guidance ranges, following another strong quarter. Better than
anticipated producer activity across the Northeast and Permian, NGL logisticsand
spreads positively drove YTD resultsabove mgmt’s initial expectations. We look
forward to 2019 guidance that likely updates for somewhat moderated production
growth expectations given the commodity price volatility
TickerCompanyRating3Q18 Actual Adj. EBITDA ($mm)3Q18 Street Median Adj. EBITDA ($mm)3Q18 JPMe Adj. EBITDA ($mm)3Q18 Results vs Street MedianDrivers of Beat/Miss vs JPMeEarnings Review / Takeaways
KMIKinder Morgan Inc.OW$1857$1863(0%)$1839(1%)In-lineSegment results came inline; NatGas Pipes benefitted from producer activity.KMI continues to expect to exceed the 2018 EBITDA and DCF budgets, which combined with significant debt reduction, should help to instill greater investor confidence.
MICMacquarie Infrastructure Corp.N$177$180(-2%)$174(2%)BelowStrong CP&E results and improved renewables conditions offset weaker Hawaii Gas results while IMTT met expectations.Mgmt reiterated IMTT utilization should recover (low-90%) by early 2020; MIC added projects to enhance Methanex/Bayonne facilities; launched sales process for wind/solar assets.
OKEONEOK Inc.OW$650$613(6%)$628(4%)AboveNGLs beat due to strong optimization and marketing activities due to wide Mont Belvieu-Conway differentials.OKE raised 2018 NGL adj. EBITDA guidance by 11% and full year 2018 adj. EBITDA guidance by 5%. Backlog continues to grow with ~$6.0bn of projects added since Jun'17.
TRGPTarga Resources Corp.OW$358$345(4%)$348(3%)AboveStronger-than-expected Logistics & Marketing margins drove the beat.TRGP revised 2018 EBITDA outlook to ‘exceeding the top end’ from the previous ‘meet or exceed’ expectations and also provided annual projections through 2021; added two new fracs.
WMBWilliams Companies, Inc. OW$1196$1146(4%)$1160(3%)AboveStrong Northeast results (volumes) propelled beat; West/Atl Gulf ops inline.With strong YTD results, mgmt now anticipates hitting the upper-end of 2018 financial guidance ; Atlantic Sunrise in-service; Leidy South expansion approved.North America Equity Research
08 January 2019
Jeremy Tonet, CFA
(1-212) 622-4915
jeremy.b.tonet@jpmorgan
Table 5: Recent Guidance Changes
Source: Company reports.
2018/2019+ Guidance
Current
2018: $7.49bn adj. EBITDA and $4.57bn DCF; $0.83/share adj. EPS; exceed 2018 budget (incl. Trans Mountain sale)
2018: ~$2.5bn growth capex and $0.80/share dividend (+60% YoY); leverage ~4.5x following TMX sale
2018-20: Dividend +36% 3yr CAGR; $2bn buyback program; Growth project backlog ~$6.5bn
2019 preliminary: $7.8bn adj. EBITDA and $5.0bn DCF; $2.20 DCF/share; $3.1bn growth capex; YE19 leverage 4.5x
Prior 2018: $7.49bn adj. EBITDA and $4.57bn DCF; $0.83/share adj. EPS; 'meet or exceed' 2018 budget (incl. Trans Mountain sale) 2018: ~$2.4bn growth capex; Growth project backlog $6.3bn; leverage ~4.6x following TMX sale
Current
$670-705mm 2018 EBITDA, Adj. Free Cash Flow $493-521mm in 2018 (-7% from 2017); $4.00 DPS in 2018 (-28% from 2017)
2018 EBITDA: IMTT $285-295mm, Atlantic Aviation $265-275mm, CP&E $85-95mm, Hawaii Gas $55-60mm, Corp/Other -$20mm
Expect mid-80% IMTT utilization in 2018, increase to low 90s percent range in 2020
~$200mm growth capex target for 2018 ($51mm maintenance capex)
Expect to deploy on average $300-350mm in growth capital per year; $750mm in projects under evaluation
$35mm IMTT repurposing capex over next 18 months; $190mm IMTT repositioning capex over next 3 years
2Q19 close targeted for sale of renewable assets (excl. HI)
Prior
$670-705mm 2018 EBITDA, Adj. Free Cash Flow $480-509mm; 10-15% decline in FCF in 2018; $4.00 DPS in 2018 (-28% from 2017)
2018 EBITDA: IMTT $285-295mm, Atlantic Aviation $265-275mm, CP&E $80-90mm, Hawaii Gas $60-65mm, Corp/Other -$20mm
~$300mm growth capex target for 2018 ($63mm maintenance capex)
Current
$2.4-2.5bn adj. EBITDA 2018
$1.8-1.9bn DCF 2018
~$2.15bn of growth capex; $175mm maintenance 2018 (midpoints)
1.2x coverage and 9-11% div growth through 2021
Ethane uplift +$100mm EBITDA in 2018 (vs 2017)
Prior
$2.3-2.4bn adj. EBITDA 2018
$1.7-1.8bn DCF 2018
~$2.13bn of growth capex; $170mm maintenance 2018 (midpoints)
Current
2018: adj. EBITDA to exceed top-end of the $1.225-$1.325bn range
2018: $2.4bn net growth capex; $110mm maint capex
2018: ~25% Permian G&P natgas inlet volume growth YoY (~18% overall)
2019/2020/2021: adj. EBITDA $1.50-$1.70bn / $1.90-$2.15bn / $2.15-$2.45bn
2019 net growth capex $2.0bn, 2020/21 aggregate net growth capex ~$1.8bn; LT leverage 3.0-4.0x
Prior
2018: adj EBITDA $1.225-$1.325bn
2018: $2.18bn net growth capex; $120mm maint capex
2019/2021: adj. EBITDA $1.55bn/$2.0bn per Jun'17 update
Current
2018/19 adj. EBITDA $4.45-$4.65bn and $4.85-$5.15bn (upper end)
2018/19 DCF $2.6-$2.9bn and $2.9-$3.3bn (upper end)
2018/19 coverage 1.6x/1.7x; 10-15% annual growth
2018/19 growth capex $3.9/$2.6bn (2018/19 Transco capex $1.7/$1.1bn)
2018/19 consolidated debt/EBITDA ~5.0x and <4.75x
Prior 2018/19 adj. EBITDA $4.45-$4.65bn and $4.85-$5.15bn 2018/19 DCF $2.6-$2.9bn and $2.9-$3.3bn
Williams
TRGP
KMI
MIC
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