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Energy Transfer, Midstream Energy Stocks Touted at Wells Fargo

'We remain constructive" on midstreams/MLPs 'given a solid fundamental backdrop, continued capital discipline,' Wells Fargo says.
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Wells Fargo analysts offered positive commentary on the midstream/master-limited-partnership/renewable energy infrastructure sector Friday.

Their bullishness stemmed from a midstream, utility and renewables symposium. 

They particularly cited the companies Energy Transfer  (ET) - Get Energy Transfer, L.P. Report, Oneok  (OKE) - Get ONEOK, Inc. Report, Magellan Midstream Partners  (MMP) - Get Magellan Midstream Partners, L.P. Report and Plains All American Pipeline  (PAA) - Get Plains All American Pipeline, L.P. Report.

“The tone of the symposium was positive, even after the recent pullback in commodity prices, as management teams still view current prices as constructive,” wrote Wells analysts Michael Blum and Praneeth Satish.

Managers “are emphasizing capital discipline (higher hurdle rates for investment, modest capital spending, lack of appetite for M&A), balance sheet strength, cash return to investors, an openness to energy transition opportunities and continued ESG improvements.”

Midstream companies expect modest growth in production volumes for 2022, the analysts said. And the companies view the potential Build Back Better legislation from the Joe Biden administration "as relatively benign to the oil and gas sector.”

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Wells Fargo’s take: “We remain constructive heading into 2022, given a solid fundamental backdrop, continued capital discipline, and a projected increase in cash return to shareholders.”

As for each of them:

ET: “[We] believe the partnership is likely to announce a capital-return plan on its next earnings call,” the analysts said.

OKE "is to consider dividend increases once its payout ratio on a traditional dividend/earnings-per-share calculation drops below 100%."

MMP is evaluating whether "to convert Longhorn into either a natural gas, natural gas liquids, or refined products service."

“PAA noted it's possible to separate Cactus into different lines and convert one line into a different service (e.g. natural gas),” the Wells Fargo analysts said.