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Here at Alerian, we love MLPs and energy infrastructure. As an indexing company, we exclusively follow these asset classes all day, every day. They are our bread and butter, our peanut butter and jelly, our ham and eggs. We’re kind of dorks about it. Here’s what to expect: As an indexing firm, you can expect objectivity. As employees, we are prohibited from owning individual MLPs; any skin we have in the game is related to the asset class itself. You can expect transparency. We think that’s one of the only ways to run an index with integrity. We are also citizens of the modern world and value transparency over secrecy. Primarily, though, we’re interested in giving you the tools to make your own decisions. We trust that you’re smart and willing to put in some work to understand MLPs and energy infrastructure. Whenever possible, we’ll walk you through the process and spell out the facts we used to draw our conclusions, so that you are free to draw different ones. We’re stat nerds, too. So you can expect us to wax poetic about data. We’re no longer embarrassed about all those years in math club. In fact, those years of being decidedly uncool have helped us explain the things we love about statistics in ways everyone can understand. You won’t find stock tips here. We’ll talk about interesting developments and trends in energy, let you know how MLPs are exposed, and acknowledge the risks. In the end, your decisions are yours. You won’t find breaking news here. Instead, we’ll focus more on long-form journalism—the kind of writing that takes time to research and analyze. We’ll talk to industry experts, see what they have to say, and pass that along to you. We’ll attend analyst days, read 100-page government reports, track any relevant bills in Congress, build models, and draw diagrams. Whatever we find fascinating, intriguing, challenging, or just plain amusing, we’ll pass that along, too. Ask us questions. Our contributors have dramatically varied backgrounds and passions: engineering, physics, international studies, and communications undergraduate degrees along with some postgraduate alphabet soup (CFA, CPA, MPA, and MSA). We like to come at it from all angles. At the end of the day, everything we do here will be driven by our vision: to equip investors to make informed decisions about MLPs and energy infrastructure. That’s it. That’s all. That’s everything. Welcome Aboard. Alerian equips investors to make informed decisions about Master Limited Partnerships (MLPs) and energy infrastructure. Its benchmarks, including the flagship Alerian MLP Index (AMZ), are widely used by industry executives, investment professionals, research analysts, and national media to analyze relative performance. Over $19 billion is directly tied to the Alerian Index Series through exchange-traded products, delta one notes, and separately managed accounts. For more information, including index values, yields, constituents, and announcements regarding rebalancings, please visit www.alerian.com.

Just Happened: Spectra Analyst Day


It must feel good when your stock trades up 4.4% on the day that you host your analyst meeting. Executives are excited that investors like their plan for the future, IR personnel are happy that their presentation conveyed that plan effectively, and employees are enthusiastic about having a plan that they can get behind. What did Spectra Energy Corporation (NYSE:SE) CEO Greg Ebel and his team do right? Let’s take a look (slide presentation here).

 

 

 

 

 

The Earth at Night map is both stunning and informative (additional evidence available here courtesy of the Suomi NPP). But what does that have to do with Spectra? A lot, when you overlay the company’s asset footprint and include the statement, “We go where the lights are.” Because the lights are generally concentrated in metropolitan areas, i.e. demand centers, and few expect energy demand to stop growing anytime soon, the implication is that SE’s plan to grow its dividend by 8%-9% per year [1] through 2017 is secure because it is not dependent on the supply of U.S. oil production continuing to grow and/or commodity prices rebounding [2].

The skeptic might point out on the second slide that Spectra is planning to grow its dividend over the next few years not by generating more distributable cash flow [3], but by taking its coverage ratio down to 1.0 times [4], leaving little room for error. That means regulatory approvals need to be secured and projects need to be completed on time and on budget at Spectra Energy Partners (NYSE:SEP). Volumes need to meet expectations on fee-based contracts. And the loonie needs to strengthen a bit against the U.S. dollar. So why don’t investors seem to be more concerned? Because the whole point of having a coverage ratio is to protect the company from events within two standard deviations [5], not for it to be constant throughout the business cycle. If a company stays meaningfully above 1.0 times in stress tests like the current environment, management might want to consider paying out more cash [6] to investors. If coverage falls below 1.0 times, management likely wasn’t conservative enough in its scenario analysis.

Footnotes:

[1] $0.14 annually, if you want to be exact.

[2] Spectra expects no distributions from DCP Midstream, its field services JV with Phillips 66 (NYSE:PSX), during 2015-2017. This compares to an annual distribution range of $55-$569 million over the last eight years. Management also said that should fundamentals continue to deteriorate, an equity infusion at DCP is off the table. So it’s fair to say that DCP won’t be a cash drain on Spectra anytime soon. But the marketplace is certainly ascribing some equity value to SE’s DCP stake, so absent a rebound in commodity prices, the ascribed value would be smaller, which would negatively impact the company’s stock price.

[3] Management expects distributable cash flow in each of the next three years to be below even 2013 results, when the company generated $1.292 billion in DCF.

[4] From 1.6 times in 2014.

[5] For example, a 50% decline in oil prices in the second half of 2014. Although maybe this is more a three-SD event, since apparently the only other time since 1900 that such a move has taken place over such a short period of time was the commodity crash of 2008.

[6] Unless you’re maintaining a war chest to pick off distressed companies in the near future.