Regarding the BWP debacle, why do upstreams yield higher?
Historically speaking, pipelines yield the lowest, below 4% in some cases, midstreams next, upstreams the highest, up to 9-10% even in good times. LINE, being the largest by far, yielded the lowest, around 7-8% in the salad days, so to speak. Why? Because pipelines typically are fee based, and don't take commodity risks, and because pipelines and processing plants last longer than reserves. Fair enough.
The problem is, it doesn't do a lot of good to have all that installed steel if you're not in the right place, and there's no real way to move it. Does LINE care about what's happening around their properties? Not really, so long as there's an orderly way to get their product out. They sell every drop of oil and every whiff of gas they lift, at prices they fixed a long time ago. Which turned out to be riskier then? Obviously it was BWP.
So, does that mean the market should do a re-think on relative risk? Yeah, I think so, the "safety" of pipelines and midstreams has been over-stated. Will that happen? No, in fact most of the upstreams took a hit today, all MLP's get tarred with the same brush (though LINE is holding up so far). The worst thing about BWP? Hedgeye gets to crow. Unsufferable.
As there is far more resource than pipe, the Midstreams have moved risk onto producers with take or pay.
The higher valuations for pipe and processing in large is where it should be. Large companies with board footprints not tied to all one resource area. Further simply owning the right of way is a very valuable asset. Even if the pipe needs to be reversed.
In BWPs case I believe they had a good amount of finshed product pipe lining running in the wrong direction The older natural gas fields were displaced by cheaper resources. The national processing nexus is Texas and Mount Beleau a special.
The prime cause of deep trouble at BWP is not the business. It is political management. Like utility managements in progressive states except the larger pipes created or are creating a national network rather than local resources. They remained a local end supply company as the business went to national and now international footprint.
Hedgeye was still wrong as always. Result does not determine cause.
KMP and EPD have better management than EPT or BWP. Outcome speaks for itself. In the case of EPD it is all organic growth which creates it's own wind as the foot print of the system expands. BWP could have but did not do the same.
We can have the occult musing of Lisxa on the matter. MLP assures above market returns! But it is redundant as we have the 6 year old wonderkind at Hedgeye already doing it.
Oh and yes line does care about the pipe running around their properties. Which is why they invested in their own gathering system with access to multiple long haul pipe systems.
BUt take heart,. Ron likes it. The OLB can vote on it.
thank you for your attention to bwp however I have been trying to find out why the big dump in bwp without any real news this am Do you know any y the big dump happened other than pipelines will no longer be treated with more deference than other mlp s