New analysis indicates that nine of the most impacted midstream companies that are covered by East Daley will experience minimal downside risk to EBITDA from the new Federal Energy Regulatory Commission (FERC) tax policies, but outliers and other factors do exist requiring careful examination of midstream assets
Centennial, CO – March 23, 2018 – East Daley Capital Advisors, Inc., an energy assets research firm redefining risk assessment for midstream energy companies, reports that the new FERC tax policies will have modest downside risk on midstream companies EBITDA, with most companies ranging from 0-5% of EBITDA at risk potentially. The analysis includes the companies Boardwalk Pipeline Partners, Enable Midstream Partners, Energy Transfer Partners, Kinder Morgan, ONEOK, Spectra Energy Partners, Tallgrass Energy Partners, TC Pipelines and Williams Partners.
“The issuance of the new FERC policies is just another example of how the market quickly overreacted without first digging into the data,” said Justin Carlson, VP and Managing Director, Research at East Daley Capital. “Yes, the downside to earnings was initially a concern, but deeper analysis shows that many companies will not be severely impacted by the new FERC tax policies.”
The analysis does indicate that EBITDA at risk for a company could be as high as 20% from the new FERC policies, but such a case is an outlier. East Daley also reports that it is important to note that companies with larger and older pipelines may be able to leverage modernization and integrity projects when negotiating with shippers, changing the overall return on equity (ROE) for the pipeline.
”This is why we recommend investors in midstream oil and gas companies look closely at the details of the new FERC rulings and how those rulings apply to specific assets in midstream companies when evaluating risk,” said Carlson. “The market is clearly having difficulty quantifying how these recent changes will impact company performance. The way to dial into that impact is to lay out each midstream asset and define the impact to overall company performance.”
Last week on Thursday, FERC ruled on two significant regulations regarding cost-of-service calculations. The first will disallow master limited partnership (MLP) interstate natural gas and oil and pipelines to recover an income tax allowance in cost of service rates, which will prevent the “double recovery” of taxes by the MLP. The second requires natural gas pipelines, weather under the MLP or C-corp structure, to file a one-time report on the rate effect of the new tax law and changes to the Commission’s income tax policies. Since the FERC announcements, most midstream companies have seen their unit prices drop substantially.
East Daley’s largest asset database of U.S. energy infrastructure and patent-pending production allocation model, combined with in-depth analysis, brings greater transparency to the midstream energy financial market by providing investors and market participants with deeper, more accurate data to inform their investment and strategy decisions.
About East Daley Capital Advisors, Inc. is an energy assets data and analysis research firm that is redefining how markets view risk for midstream and exploration and production (E&P) companies. In addition to using top-level financial data to predict a company’s performance, East Daley delivers asset-level analysis that provides comprehensive, fact-based intelligence. Supported by a team of unbiased, experienced research analysts, East Daley provides its clients unparalleled insight into how midstream and E&P companies operate and generate cash flow. East Daley uses publicly available fundamental data and intersects that data with a company’s reported financials to asset-level adjusted-EBITDA and distributable cash flow (DCF). The result allows for more informed portfolio decisions. Founded in 2014, the company is based in Centennial, Colorado. For more information visit http://www.eastdaley.com.