| NEW YORK
NEW YORK Jan 27 Investors have rushed back into
North American pipelines after U.S. President Donald Trump
revived growth prospects in a sector that struggled to cope with
a two-year oil price slump and strident opposition from
environmental and Native American activists.
Investor confidence in the industry was shaken last year
when the administration of former President Barack Obama halted
the $3.8 billion Dakota Access Pipeline, just as Energy Transfer
Partners had nearly finished building it.
Protesters have rallied for months against plans to route the
Dakota Access pipeline under a lake near the Standing Rock Sioux
reservation in North Dakota, saying it threatened water
resources and sacred Native American sites.
A year earlier, Obama rejected TransCanada Corp's
C$8 billion ($6.08 billion) Keystone XL project, which would
ship oil from Canada to U.S. refiners.
Trump sought to smooth the way for both projects with
executive orders on Tuesday as he made good on campaign promises
to drive infrastructure investment throughout the world's
The orders sparked a rally in indices that track pipeline
companies to a more than 14-month high.
The shares of firms that build the pipelines and storage
tanks such as Magellan Midstream Partners and Enterprise
Products Partners have rallied as much as 9 percent in
the days following Trump's orders.
Those gains came on top of a rally of about 13 percent in
these firms since Trump's surprise election victory on Nov. 8.
"Energy companies can invest more confidently over the next
four years with less concern over federal delays," said Libby
Toudouze, a portfolio manager at Cushing Asset Management. The
firm manages around $2.7 billion of investments in pipeline and
energy transport and storage firms.
"I do think we are going to see a good consistent flow of
new investors coming into this (pipeline) space for next 3-5
The top picks for investors include Valero Energy Partners
LP, Phillips 66 Partners LP and MPLX LP
Energy infrastructure companies, once a darling of the
industry, had languished in 2015 and early 2016 as oil prices
plummeted to multiyear lows.
These firms, often structured as master limited partnerships
(MLPs), are typically the vehicles used by investors to gain
exposure to the pipeline industry.
MLPs are a tax-exempt corporate structures that pay out
profit to investors in dividend-style distributions. Investors
have funneled billions of dollars into the infrastructure
industry through them since the shale boom began.
The Alerian MLP index, which tracks a number of
pipeline firms including Magellan, Enterprise, Energy Transfer
Partners and Plains All American Pipeline LP, has risen
more than 17 percent since Trump's election, including a 6
percent rally this week to the highest level since November
The pipeline sector has outperformed both oil and gas
producers and the S&P 500 index, which have
risen about 13 percent and 7.5 percent, respectively, since the
"You don't have to take a lot of risk in the MLP space at
this point to make outsized returns ... so it's an interesting
time and a unique opportunity in the MLP space," said Matt
Sallee, a portfolio manager at Tortoise Capital.
The Alerian index rose 9 percent in 2016 as oil prices rose,
OPEC and non-OPEC exporters announced supply cuts, and on
Trump's election. That came after a crash of more than a third
Mutual and exchange traded funds' investment in MLPs crashed
to $3.8 billion in 2015 before recovering to about $6.2 billion
last year, according to Morningstar.
The revival in U.S. shale activity sparked by the recovery
in oil prices has also given pipeline companies a boost and
opened the way to further development. Significant challenges
remain - activists plan to take their fight to the courts on a
state-by-state basis, which could bog down future developments.
But for now, investors see room for the value of pipeline
firms to go higher.
"We think drilling is going to expand in the U.S. and will
need plenty of new infrastructure, particularly in the Permian
Basin," said Jay Hatfield, portfolio manager of the InfraCap MLP
ETF. MLPs were around 60 percent undervalued compared with BBB
bonds which usually fetch the same yield, he added.
Already, pipeline companies such as Plains All American have
announced large deals and expansions in the Permian, the biggest
shale play in the United States.
"Production is getting back to the growth mode," said
Toudouze, "so we need to have the infrastructure and these are
the companies that are going to build it."
($1 = 1.3149 Canadian dollars)
(Reporting by Devika Krishna Kumar and Catherine Ngai in New
York; Editing by Simon Webb and Matthew Lewis)