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PAA’s Potential Distribution Cut: Are MLPs Recovering?

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PAA’s Potential Distribution Cut: Are MLPs Recovering? PART 1 OF 3

These MLPs Increased Distribution in 3Q17

PAA’s potential distribution cut

Plains All American Pipeline’s (PAA) recent announcement of its need for a distribution reset—based solely on fee-based cash flows—sent jitters across the MLP (master limited partnership) sector. While PAA tumbled nearly 20% on August 8, 2017, the Alerian MLP Index fell nearly 3%.

But if Plains All American has decided to cut distributions again, will other MLPs do the same?

These MLPs Increased Distribution in 3Q17

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MLP distributions in 3Q17

More than 40% of MLPs have increased their distributions QoQ (quarter-over-quarter) 3Q17, while 55% have kept their distributions unchanged. Only four MLPs—Alon USA Partners (ALDW), OCI Partners (OCIP), CVR Partners (UAN), and Teekay Offshore Partners (TOO)—have cut their distributions QoQ in 3Q17.

Both ALDW and UAN are variable distribution MLPs, which means that their distributions vary each quarter, depending on the cash generated. These MLPs do not have minimum quarterly distributions.

OCIP’s distributions vary over quarters based on changes in realized prices of methanol, ammonia, and natural gas. So, effectively, just one other MLP has announced a distribution cut in 3Q17—Teekay Offshore Partners—which reduced its distributions as a part of its strategic partnership with Brookfield.

These MLPs Increased Distribution in 3Q17

Highest increase, distribution cuts

Among midstream energy MLPs, Tallgrass Energy GP (TEGP) increased its 2Q17 distributions by 19.1% over 1Q17. Tallgrass Energy Partners (TEP) grew its distribution by 10.8% QoQ.

However, since 2014, nearly one-fourth of all MLPs have announced a distribution cut or suspension. Plains All American’s second distribution cut announcement came at a time when it was widely believed that the major cuts (if any)—especially by the larger players—were behind us.

In the next part of this series, we’ll discuss what we can expect from MLP distributions going forward.

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