Why Williams Companies Is Outperforming Peers in 2017
Recent market performance
MLPs (master limited partnerships) had a weak month in August 2017 due to the significant volatility in crude oil prices, and the GPs (general partners) of many MLPs were among the most volatile due to their dependence on limited partnerships for distribution income.
Plains GP Holdings (PAGP) was the most battered last month, witnessing a new YTD (year-to-date) low of $19.8 in August. PAGP stock crashed after Plains All American Pipelines (PAA) announced its plans to cut distribution second time in the past year. (For details, read Market Realist’s series Plains All American’s 45.5% Distribution Cut: What’s the Story?)
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However, PAGP and the three other peers—Energy Transfer Equity (ETE), Western Gas Equity Partners (WGP), and Williams Companies (WMB)—have recovered significantly from their August lows, having risen 15.3%, 7.6%, 4.3%, and 4.4%, respectively, since then. The Alerian MLP ETF (AMLP), which consists of 25 energy MLPs, has risen 6.9% during the same period.
YTD market performance
All four of the above GPs are now trading in negative territory along with AMLP. But WMB has been outperforming the selected peers and AMLP since the beginning of 2017.
WMB has lost 2.3% YTD (year-to-date), while Energy Transfer Equity, Western Gas Equity Partners, and Plains GP Holdings have lost 8.8%, 4.2%, and 33.5%, respectively, YTD, and AMLP has lost 10.3% YTD. WMB’s outperformance relative to AMLP can be mainly attributed to Williams Partners’ (WPZ) low crude oil exposure.
PAGP has remained in negative territory throughout 2017, likely due to its high crude oil exposure and weak earnings in the recent quarters.
Notably, the GPs that have removed IDRs (incentive distribution rights)—WMB and PAGP—are underperforming their limited partnerships YTD, while the MLPs with IDRs are outperforming their limited partnerships. Williams Partners, Plains All American Pipeline, Energy Transfer Partners (ETP), and Western Gas Partners (WES) have returned 4.0%, -32.3%, -21.5%, and -11.6% YTD, respectively.