the rise of mlps and implications for wyoming · 6 exhibit 3 - mlp risky asset dashboard (august...
TRANSCRIPT
The Rise of MLPs and Implications for Wyoming
September 19, 2014
Please refer to Appendix – Important Disclosures and Analyst
Certification on page 43.
Ethan Bellamy
Managing Director
Robert W. Baird & Co.
(303) 270-6322
Agenda
• About Baird
• Broad Financial Indicators and Outlook
• Energy Macro
• MLP Specifics
• MLPs in Wyoming
• Conclusions and Advice
2
About Baird
•1919
Founded in Milwaukee
•2004
Baird becomes employee-owned
•$121 billion
Client Assets*
•$1.1 billion
2013 revenue
•2,900
Number of employees
•100+
Office locations around the world**
11
Number of consecutive years Baird
has been recognized as one of the
FORTUNE 100 Best Companies to
Work For®
*As of March 31, 2014
**Baird and its operating affiliates have offices in the United States, Europe and Asia. Robert W. Baird Ltd. is authorized and regulated in the UK by the Financial Conduct
Authority. 1Greenwich Associates U.S. Equity Investors - Small/Mid-Cap Funds, May 2014. Surveys conducted with 98 U.S. small-cap and mid-cap fund managers.
BAIRD’S
GLOBAL
FOOTPRINT Quality
• No. 1 “Most Trusted”
Research1
• No. 1 “Overall Sales
Quality”1
Commitment
• Coverage has grown 33%
since the beginning of
2009, including 170+ new
companies and the recent
addition of our Portfolio
Strategy research team
Energy
• Baird’s 5 senior analysts cover 123 total energy securities, including 43 MLPs, 23 E&Ps, 15 oilfield services, 19 clean
tech, and 23 utilities
3
Baird’s Crude Oil Supply Chain Coverage
4
“Upstream” “Midstream” “Downstream”
Katzenberg
E&P
Leben
OFS
Bellamy
MLP
Parker
Utes
Frac Sand Production
Wittmann
“E&C”
Source: American Petroleum Institute
Exhibit 1 - API Supply Chain Illustration
Baird’s Natural Gas Supply Chain Coverage
5
“Upstream” “Midstream” “Downstream”
Katzenberg
E&P
Leben
OFS Bellamy
“MLP”
Parker
Utes
Wittmann
“E&C”
Frac Sand Production
Source: American Petroleum Institute
Exhibit 2 - API Supply Chain Illustration
6
Exhibit 3 - MLP Risky Asset Dashboard (August 13, 2014)
Note: Dashboard Display based on review of daily three year observations plotted against a normal distribution curve with each color block shown above sized to represent 1 standard deviation of this normal distribution curve.
Past performance is not a guarantee of future results. Indices are unmanaged, and are not available for direct investment. Please see Appendix – Important Disclosures and Analyst Certification for index definitions.
Source: Bloomberg
Key Yields
1-Month Federal Funds Rate 10-Year Treasury Yield BAA Corporate Bond Yield S&P 500 Dividend Yield
Current Level 0.09% 2.42% 4.75% 1.96%
Monthly Chg (# Std Devs) (0.20) (0.51) (0.06) 0.84
Other Key Macro Items
1-Year Federal Funds Rate Treasury Yield Curve Steepness 10-Year Inflation Expectations US Dollar Index
Current Level 0.39% 2.00% 2.23% 81.6
Monthly Chg (# Std Devs) 0.63 (0.41) (0.21) 0.99
Liquidity and Volatility
Cost of Liquidity Treasury Bond Volatility Corporate Bond Volatility Stock Volatility
Current Level 0.21% 59.4 87.1 13.2
Description Ted Spread MOVE Index CDS Index VIX Index
Monthly Chg (# Std Devs) (0.30) 0.52 0.00 0.52
Low yields, volatility suggest caution
Neutral-to-bearish spreads
7
Spot Pricing
Henry Hub Natural Gas WTI Crude Oil Brent Crude Oil NYMEX Gasoline
Current Price $3.83 $97.41 $104.02 $2.75
Unit ($/MMbtu) ($/bbl) ($/bbl) ($/gallon)
Monthly Chg (# Std Devs) (0.67) (0.54) (0.52) (0.92)
Mt. Belvieu NGL Barrel Mt. Belvieu Ethane Mt. Belvieu Propane Conway NGL Barrel
Current Price $37.99 $0.23 $1.03 $37.82
Unit ($/bbl) ($/gallon) ($/gallon) ($/bbl)
Monthly Chg (# Std Devs) (0.52) (0.98) (0.12) (0.40)
Key MLP-Related Yields
AMZ Index Distribution Yield AMZ Spread to Treasuries AMZ Spread to Corp. Bonds AMZ Spread to S&P 500 Div Yield
Current Level 5.29% 2.87% 0.54% 3.33%
Monthly Chg (# Std Devs) 0.49 0.90 0.04 0.25
Note: Dashboard Display based on review of daily three year observations plotted against a normal distribution curve with each color block shown above sized to represent 1 standard deviation of this normal distribution curve.
Past performance may not be indicative of future performance. Please see Appendix – Important Disclosures and Analyst Certification for index definitions. AMZ Spread to Treasuries is calculated using the U.S. 10 Yr.
benchmark bond. The Alerian MLP Index is a composite of the 50 most prominent energy Master Limited Partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for this emerging asset
class. The index, which is calculated using a float-adjusted, capitalization-weighted methodology, is disseminated real-time on a price-return basis (NYSE: AMZ).
Source: Bloomberg
Exhibit 4 - MLP Hydrocarbon and Spreads Dashboard (August 13, 2014)
Interest Rates Expected to Rise Modestly, but Remain Low
Source: Bloomberg
Exhibit 5 - Fed Funds rate vs. 10-year U.S. Treasury rates, 1997 Actuals through 2016 Estimates
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
01/0
1/9
7
07/0
1/9
7
01/0
1/9
8
07/0
1/9
8
01/0
1/9
9
07/0
1/9
9
01/0
1/0
0
07/0
1/0
0
01/0
1/0
1
07/0
1/0
1
01/0
1/0
2
07/0
1/0
2
01/0
1/0
3
07/0
1/0
3
01/0
1/0
4
07/0
1/0
4
01/0
1/0
5
07/0
1/0
5
01/0
1/0
6
07/0
1/0
6
01/0
1/0
7
07/0
1/0
7
01/0
1/0
8
07/0
1/0
8
01/0
1/0
9
07/0
1/0
9
01/0
1/1
0
07/0
1/1
0
01/0
1/1
1
07/0
1/1
1
01/0
1/1
2
07/0
1/1
2
01/0
1/1
3
07/0
1/1
3
01/0
1/1
4
07/0
1/1
4
01/0
1/1
5
07/0
1/1
5
01/0
1/1
6
Fe
d F
un
ds
Ra
te (
%)
10
-ye
ar
U.S
. T
rea
su
ry R
ate
Fed Funds Rate 10-year U.S. Treasury Yield
US 10-year Consensus - Mean US 10-year Consensus - High
US 10-year Consensus - low Fed Funds Consensus - Low
Fed Funds Consensus - High Fed Funds Consensus - Mean
8
Fed Funds: 0.25%
10 yr UST: 2.62%
Current Market Backdrop
Source: Bruce Bittles, Robert W. Baird Investment Strategist; 9/14/14
Current Previous Indication
CBOE 10-Day Put/Call Ratio Below 80% is bearish; Above 95% is bullish
94% 98% Neutral
CBOE 3-Day Equity Put/Call Ratio Below 53% is bearish; Above 63% is bullish
60% 64% Neutral
VIX Volatility Index Below 16 is bearish; Above 22 is bullish
13.3 12.1 Bearish
American Association of Individual Investors Twice as many bulls as bears is bearish; more bears than bulls is bullish
Bulls: Bears:
40.4% 26.6%
Bulls: Bears:
44.7% 24.0%
Bearish
Investors Intelligence (Advisory Services) 55% bulls and/or less than 18% bears is considered bearish
Bulls: Bears:
57.6% 14.1%
Bulls: Bears:
56.1% 13.3%
Neutral
National Assoc. of Active Investment Mgrs. (NAAIM) Below 30% is bullish; Above 70% is bearish
64% 83% Neutral
Ned Davis Research Crowd Sentiment Poll Extreme Optimism Extreme Optimism Bearish
Ned Davis Research Daily Trading Sentiment Composite Pessimism Fading Pessimism Fading Neutral
Exhibit 6 – Market Sentiment Indicators (September 14, 2014)
9
• Sentiment and technical indicators remain neutral to bearish
Source: INGAA, EIA Data, Robert W Baird & Co. Research.
Exhibit 7 - Net import share of U.S. liquid fuels
consumption in five cases, 1990-2040 (percent)
Exhibit 8 - Total natural gas production,
consumption, and imports, 1990-2040 (trillion cubic feet)
U.S. energy supply pushing back imports
• Crude oil is the last man standing on supply
10
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan Feb Mar Apr May Jul Aug Sep Oct Nov Dec
Inve
nto
ry (
Tcf
)5-Yr Rolling Avg. 2013 2014 Average +1 Std Dev -1 Std Dev
Current Inventory: 2.39 Tcf 5-YearAverage: 2.83 Tcf+1 Std Dev: 3.63 Tcf-1 Std Dev: 2.03 Tcf
Gas Storage Inventories Trending Less Bullish
Source: EIA Data
Exhibit 9 - Weekly Lower 48 Natural Gas Working Underground Storage (2009-2014)
Exhibit 10 - Weekly Eastern Consuming Region Natural Gas Working Underground Storage (2009-2014)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Inve
nto
ry (
Tcf
)
5-Yr Rolling Avg. 2013 2014 Average +1 Std Dev -1 Std Dev
Current Inventory: 1.22 Tcf5-Year Average: 1.42 Tcf+1 Std Dev: 1.91 Tcf-1 Std Dev: 0.93 Tcf
11
320
330
340
350
360
370
380
390
400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Inve
nto
ry (
MM
bb
l)5-yr Rolling Avg. 2013 2014 Average +1 Std Dev -1 Std Dev
Current Inventory: 366 MMbbls5- Year Average: 358 MMbbls+1 Std Deviation: 376 MMbbls-1 Std Deviation: 340 MMbbls
100
120
140
160
180
200
220
240
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Inve
nto
ry (
MM
bb
l)
5-Yr Rolling Avg. 2013 2014 Average +1 Std Dev -1 Std Dev
Current Inventory: 195 MMbbls5-Year Average: 178 MMbbls+1 Std Dev: 190 MMbbls-1 Std Dev: 166 MMbbls
Crude Inventories Bearish, Particularly on the USGC
Note: Data represents weekly ending stocks excluding SPR of Crude Oil. Gulf Coast stocks represent PADD 3 as reported by the EIA.
Source: EIA Data
Exhibit 11 - Weekly U.S. Crude Stocks (2009-2014)
Exhibit 12 - Weekly Gulf Coast Crude Stocks (2009-2014)
12
• Crude oil backwardation persists
Crude oil futures through time
Source: Bloomberg Data
Exhibit 13 – WTI Crude Oil Futures (Daily Observations: April 14, 2009 – Present)
13
Natural gas futures through time
Source: Bloomberg Data
Exhibit 14 – Henry Hub Natural Gas Futures (Daily Observations: April 13, 2009 – Present)
14
• Early 2014 enthusiasm after a cold winter and depleted inventories has subsided
Ethane futures through time
Source: Bloomberg Data
Exhibit 15 – Mont Belvieu Ethane Futures (Daily Observations: August 13, 2010 – Present)
15
• Ethane pricing remains abysmal, rejected and dejected
10
20
30
$8.00
$13.00
$18.00
$23.00
$28.00
$33.00
$38.00
08/1
3/14
05/1
5/14
02/1
4/14
11/1
6/13
08/1
8/13
05/2
0/13
02/1
9/13
11/2
1/12
08/2
3/12
05/2
5/12
02/2
5/12
11/2
7/11
08/2
9/11
05/3
1/11
03/0
2/11
12/0
2/10
09/0
3/10 M
t. B
elvi
eu E
than
e ($
/bb
l)
$8.00-$13.00 $13.00-$18.00 $18.00-$23.00 $23.00-$28.00 $28.00-$33.00 $33.00-$38.00
Propane futures through time
Source: Bloomberg Data
Exhibit 16 – Mont Belvieu Propane Futures (Daily Observations: August 13, 2010 – Present)
16
• Propane has stabilized after a brutal winter spot market spike that proved to be transitory
10
20
30
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
$70.00
08/1
3/14
05/1
5/14
02/1
4/14
11/1
6/13
08/1
8/13
05/2
0/13
02/1
9/13
11/2
1/12
08/2
3/12
05/2
5/12
02/2
5/12
11/2
7/11
08/2
9/11
05/3
1/11
03/0
2/11
12/0
2/10
09/0
3/10
Mt.
Bel
vieu
Pro
pan
e ($
/bb
l)
$30.00-$35.00 $35.00-$40.00 $40.00-$45.00 $45.00-$50.00 $50.00-$55.00 $55.00-$60.00 $60.00-$65.00 $65.00-$70.00
• Publicly traded partnerships that forego taxation at the entity level
Source: National Association of Publicly Traded Partnerships, Robert W. Baird research.
What are MLPs?
• General Partners (GPs) are responsible for
management of the partnership and generally
possess a 2% ownership stake and Limited
Partner (LP) units as well as Incentive
Distribution Rights (IDRs).
• Section 7704c of the internal revenue code
limits PTPs to certain types of qualifying
income, including typically the production and
transportation of extractive resources.
• Potentially thousands of limited partners (LPs)
provide capital through the purchase of
common units, which receive periodic cash
payments (“distributions”).
• LPs have no role in the management or
operation of the partnership.
Exhibit 17 - Sample MLP Structure
Exhibit 18 - MLPs vs. Corporations
17
Source: Robert W. Baird Research, Bloomberg, FactSet, CAGR = Compound Annual Growth Rate
Growth in MLPs has averaged 28% per year
Exhibit 19 - Enterprise Value Growth and the Number of MLPs
18
• Demand for yield instruments and resource boom drives strong growth in the number and
size of MLPs, as well as expansion into non-traditional MLP activities.
Source: Robert W. Baird Research, Bloomberg, FactSet, CAGR = Compound Annual Growth Rate. Indices are unmanaged and not available for direct investment. Past performance may not be
indicative of future results.
Exponential Growth in Client Assets and Dedicated Funds
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
1/1
/2006
5/1
/2006
9/1
/2006
1/1
/2007
5/1
/2007
9/1
/2007
1/1
/2008
5/1
/2008
9/1
/2008
1/1
/2009
5/1
/2009
9/1
/2009
1/1
/2010
5/1
/2010
9/1
/2010
1/1
/2011
5/1
/2011
9/1
/2011
1/1
/2012
5/1
/2012
9/1
/2012
1/1
/2013
5/1
/2013
9/1
/2013
1/1
/2014
Alte
rnative
Pro
ducts
Asse
ts U
nd
er M
anag
em
ent
($M
M)
Current AUM: $61.9Billion3 Year AUM CAGR: 83%
AMJ
AMLP
Exhibit 20 – Growth of MLP Wrap Products
19
Source: Enterprise Products Partners, Robert W. Baird Research, Bloomberg, FactSet, CAGR = Compound Annual Growth Rate. Indices are unmanaged and not available for direct investment.
Past performance may not be indicative of future results.
Strong Track Record of Performance
• The Alerian MLP Index (AMZ) has outperformed the S&P 500 on a total return basis three of the
last five years (tie in 2008); year-to-date the AMZ Index has outperformed the S&P 500 on a total
return basis.
Exhibit 21 - Sector Total Returns (Yearly Observations 2008-September 30, 2013)
2008 2009 2010 2011 2012 2013 YTD 5-Year CAGR 3-Year CAGR
Hedge Funds
-19.1%
MLPs
76.4%
MLPs
36.9%
Utilities
14.1%
Non-US Equity
14.5%
Clean Energy
57.9%
REIT
15.7%
MLPs
29.5%
S&P 500
16.2%
Utilities
-29.9%
E&P
60.6%
E&P
22.2%
MLPs
13.9%
S&P 500
14.2%
S&P 500
32.4%
MLPs
15.2%
S&P 500
17.9%
MLPs
15%
MLPs
-37.0%
Commodities
50.4%
Commodities
20.4%
Commodities
2.1%
REIT
12.7%
MLPs
27.6%
Utilities
7.4%
E&P
15.5%
Non-US Equity
8.2%
S&P 500
-37.0%
Clean Energy
39.7%
REIT
17.9%
S&P 500
2.1%
Hedge Funds
7.7%
E&P
25.6%
S&P 500
5.9%
Commodities
14.5%
REIT
5.4%
Commodities
-42.8%
Non-US Equity
32.5%
S&P 500
15.1%
Hedge Funds
-2.3%
MLPs
4.5%
Non-US Equity
22.8%
E&P
4.4%
Non-US Equity
12.4%
Utilities
5.0%
Non-US Equity
-43.1%
S&P 500
26.5%
Utilities
14.1%
REIT
-2.5%
Commodities
-0.2%
Hedge Funds
7.7%
Hedge Funds
0.6%
REIT
11.9%
Commodities
1.7%
E&P
-44.6%
REIT
25.1%
Hedge Funds
10.9%
E&P
-9.6%
Utilities
-3.0%
Utilities
6.5%
Non-US Equity
0.5%
Utilities
4.2%
E&P
1.5%
REIT
-48.2%
Hedge Funds
18.6%
Non-US Equity
8.2%
Non-US Equity
-11.7%
E&P
-11.5%
REIT
-1.4%
Clean Energy
-0.1%
Hedge Funds
-0.1%
Hedge Funds
-0.1%
Clean Energy
-60.9%
Utilities
14.1%
Clean Energy
-14.6%
Clean Energy
-40.2%
Clean Energy
-20.9%
Commodities
-2.9%
Commodities
-5.4%
Clean Energy
-5.0%
Clean Energy
-14.1%
20
CHQ
VLP
KMI WGP DLNG
PVG VOC LNCO MEP
BGH SDT SDR ARCX ***
MMG NDRO ROYT OCIP ***
ATN MVO CHKR WHZ WNRL 1
HPGP ENP PER CVRR PAGP 2
ATLS QELP GMLP ALDW OCIR 3
TOO OSP RNF SXE FISH 4
NSH DEP MCEP DKL USAC 5 15
MLP Constituent AHGP NMM NRGM LGP KNOP 6 16
Royalty Trust EPE ETE CMLP MEMP MPLX CVRR 7 17
MLP C-Corp. Affiliates NRGP CEP CPLP TRGP RRMS SDLP SXCP 8 18
Potential IPO (Publicly Filed S-1) HLND EROC EPB ECT LRE SMLP WPT 9 19
Management Contemplated KMR PPX XTXI DPM EXLP VNR ACMP AMID SUSP QEPM 10 20
Note: *** Denotes restricted security CNO KSL XTEX KSP BWP BBEP BKEP QRE OILT NTI PSXP 11 21
BPT NGT DOM NPL MMP MMLP USS WPZ EVEP SEP WHX RNO GSJK PDH TEP 12 22
EPR CRT TRU CRO SPH HGT NS NRP CPNO GLP RGP CQP WMZ OXF NGL ARP EMES 13 23
Sante Fe
Energy SFL KPPPRD
EEEP UAN LEV EOT APU ETP EPD ARLP NRGY MWE STON TLP CLMT NGLS WES NKA TLLP EQM NSLP 14 24
POPE BPL BCU HWY PCL TPP TNH KMP OKS FGP SGU GEL TMBZ PAA TCP APL PVR SXL DMLP HEP TGP LINE LGCY PSE PNG UAN HCLP SRLP CELP 25
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015+
• After a lull in new issuance in 1H14, IPOs have begun to accelerate in 3Q.
Source: Robert W. Baird Research
Note: Potential IPO category includes all publicly filed S-1 registration statements (does not include potential privately filed S-1’s. Management contemplated includes list of companies, both public
and private, who have publicly stated intentions or commented on the potential opportunity to form an MLP.
Exhibit 22 - MLP Sector Historical IPOs & Backlog (Annual Observations 1985 - Present)
Growth in MLPs drives unprecedented midstream capital Inflows
71.3%
58.7%
53.3%
27.5% 26.5% 21.7% 20.7%
18.8% 17.4%
10.4% 9.6% 8.5% 5.1%
(0.4%)
Mean = 24.9%
(10.0%)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
VLP GLOP OCIP ENBL WNRL DLNG PAGP CELP MEP OCIR ARCX VNOM PBFX SRLP
90
-Day
To
tal
Re
turn
fro
m IP
O (
%Six-Month MLP IPO Performance
Source: Bloomberg.
Note: Past results are not indicative of future returns.
Exhibit 23 – Six-Month Price Return from MLP IPOs in the last Twelve Months
• SRLP, the only IPO with a negative return, is an out-of-favor coal MLP that experienced a fire in one of
its coal mines.
• Strong performance out of C-corp carve-out infrastructure MLPs
22
Source: Bloomberg Data
Production growth drives unprecedented midstream capex
Exhibit 24 - MLP Sector Capex (Yearly Observations 2010 – 2015E)
23
• Massive investment is needed to build out the infrastructure network required to support
this production growth. Investment in gathering, processing, storage, and regional
pipelines is expected to reach $7.5B per year through 2030.
EQM
QEPM
ACMP
VLP
MPLX
RRMSTEP
PSXP
ENLK
WES
ENBL
y = -0.1493x + 0.0591R² = 0.7138
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0% 5% 10% 15% 20% 25% 30% 35%
Yie
ld (
%)
Consensus Compound Annual Grow th RateNote: Bubble size represents Market Cap
Source: Factset, R. W. Baird Estimates
Highest yielding MLPs: clear visibility and high growth
Source: FactSet, Baird Research.
Exhibit 25 – Regression-Applied Yield Valuation Approach
24
• Distribution growth, the result of successful capital deployment, drives MLP yields & valuations
MLPs Cost of Capital Advantage
Weighted Average Cost of Capital (WACC) is a firms after tax cost of all capital sources (debt, equity, preferred stock) weighted by the proportionate share of the firms capital structure. Large-cap
E&P: APA, APC, CHK, DVN, EOG, NBL, OXY, SWN; Mid-Cap E&P: BEXP, CLR, COG, CXO, FST, HK, KWK, NFX, PXD, PXP, RRC, SD, SM, UPL, XEC; Small
Cap E&P: BBG, CPE, CRK, CRZO, EXXI, GDP, GMXR, HDY, KOG, MMR, NOG, PVA, PQ, ROSE, SGY, SFY, WTI. WY Upstreams: LINE, VNR, MEMP, LGCY,
BBEP. Baird Upstream Coverage: LINE, LGCY, EVEP, BBEP, VNR, QRE, MCEP, LRE, ARP.
Source: Bloomberg Data
Exhibit 26 – Small-, Mid-, and Large-Cap E&P WACC vs. WY Upstream MLPs and Baird Upstream
Coverage WACC
25
• MLPs enjoy a structural cost of capital advantage over C-corps due to their pass-through
tax status, making them a preferred vehicle through which to make these investments.
Wyoming Oil & Gas Deal Activity (2009 – Present)
Source: IHS Herold
Announced Date Buyers Sellers Total Value (US$MM)
Proved Liquids
Reserves(
MMbbl)
Proved Gas
Reserves (Bcf)
8/19/2014 Undisclosed company(ies) WPX Energy Inc. $155 222
8/14/2014 Ultra Petroleum Corporation Royal Dutch Shell plc $1,180 2,056
5/5/2014 Memorial Production Partners LP Merit Energy Company $935 83
3/31/2014 TPG Capital LP Encana Corporation $1,800 20 1,374
12/23/2013 Vanguard Natural Resources LLC Anadarko Petroleum Corporation $581 29 672
10/9/2013 Argent Energy Trust Undisclosed private company(ies) $105 6 0
9/11/2013 Memorial Production Partners LP Undisclosed company(ies) $29 0 20
7/30/2013 Questar Corporation;Wexpro CompanyUndisclosed company(ies) $106 118
9/4/2012 Warren Resources Inc. Anadarko Petroleum Corporation $12 18
6/25/2012 Linn Energy, LLC BP plc $1,025 33 533
4/30/2012 Legacy Reserves LP Undisclosed company(ies) $17 1 1
4/25/2012 BreitBurn Energy Partners L.P. Legacy Energy Inc.;Nimin Energy Corporation$98 6
8/23/2011 Encore Energy Partners LP Undisclosed company(ies) $29 1 16
7/27/2011 BreitBurn Energy Partners L.P. Cabot Oil & Gas Corporation $285 2 219
6/28/2011 Denbury Resources Incorporated Cimarex Energy Co. $176 250
6/14/2011 BreitBurn Energy Partners L.P. Timberline Productions $57 3
2/25/2011 Linc Energy Limited Rancher Energy Corp. $20 1
2/25/2011 Northwest Natural Gas Company Encana Corporation $250 93
9/15/2010 Denbury Resources Incorporated Undisclosed company(ies) $115 185
3/15/2010 Fidelity Exploration & Production Company;MDU Resources Group, Inc.Undisclosed company(ies) $113 1 58
12/18/2009 Legacy Reserves LP SM Energy Company $130 8 4
10/28/2009 Nimin Energy Corporation Undisclosed company(ies) $27 7
Total $7,246 201 5,83826
• Over $7B in total upstream M&A over the past five years, $3.2B from upstream MLPs
Exhibit 27 – Wyoming E&P Transactions
MLPs Operating in Wyoming
Source: Bloomberg, NAPTP
Access Midstream Partners LP
AmeriGas Partners LP
Atlas Energy LP
Atlas Resource Partners LP
BreitBurn Energy Partners LP
Calumet Specialty Products Partners
Compressco Partners LP
Crestwood Equity Partners LP
Crestwood Midstream Partners LP
DCP Midstream Partners LP
Dorchester Minerals LP
Energy Transfer Equity LP
Energy Transfer Partners LP
Enterprise Products Partners LP
Exterran Partners LP
Genesis Energy LP
Holly Energy Partners LP
Kinder Morgan, Inc./ El Paso Pipeline Partners LP
Legacy Reserves LP
Linn Energy LLC/LinnCo LLC
Magellan Midstream Partners LP
Marlin Midstream Partners LP
Memorial Production Partners LP
Natural Resource Partners LP
NGL Energy Partners LP
NuStar Energy LP/NuStar GP Holdings LLC
OCI Resources LP
ONEOK Partners LP
Plains All American Pipeline LP/Plains GP Holdings LP
PVR Partners LP
QEP Resources Inc
SemGroup Corp
Spectra Energy Corp
Suburban Propane Partners
Tallgrass Energy Partners LP
TC PipeLines LP
USA Compression Partners LP
Vanguard Natural Resources LLC
Western Gas Partners LP/Western Gas Equity Partners LP
The Williams Cos. Inc./Williams Partners
27
• ~40 publicly traded MLPs operate midstream or upstream assets in Wyoming
Exhibit 28 – MLPs with interests in Wyoming
Wells Drilled in Wyoming (9/1/2013-Present)
Size of bubble represents peak oil production
Source: DI Desktop
Big Horn Basin Powder River Basin
DJ Basin
Green River Basin
28
Exhibit 29 – Map of Wyoming Wells (bubble size reflects peak oil production)
• Strong results in the Powder River Basin…
Wells Permitted in Wyoming (9/1/2013-Present)
Source: DI Desktop
Big Horn Basin Powder River Basin
DJ Basin
Green River Basin
29
• … drives increased permitting activity, particularly in Campbell, Johnson, and Converse counties
Exhibit 30 – Map of Wyoming Well Permits
Noteworthy MLP investments in Wyoming: Enterprise Products Partners (EPD)
Source: EPD 2014 Analyst Day Presentation
• $70+ billion market cap MLP
• One of the largest midstream asset footprints in
the West, including Wyoming
• Franchise gathering & processing assets in the
Green River Basin (Jonah/Pinedale) and
anchored by the Pioneer processing plant
• Jonah Gathering System – 773 miles of
gathering pipes with 2.36 Bcf/d of capacity
• Pioneer Plant - 1.35 Bcf/d of processing
capacity
• Output feeds into EPD’s Mid-America Pipeline
System (>8,000 pipeline miles of NGL
transportation capacity) and ultimately hits
markets on the Gulf Coast
30
Noteworthy MLP investments in Wyoming: Tallgrass Energy Partners (TEP)
• $2+ billion market cap MLP, with
a multi-billion backlog of assets
still held at the privately held
parent, Tallgrass Development,
including the Rockies Express
Pipeline (“REX”)
• Pony Express (“PXP”) has a
capacity of ~250,000 bpd and
originates in Guernsey and
delivers light crude through
Kansas to Cushing, Oklahoma.
• TEP recently purchased a 1/3
interest in PXP from the sponsor
for $600MM, implying $1.8B in
asset value for PXP
31
Source: Tallgrass Energy Partners (TEP)
Noteworthy Investments in Wyoming: Anadarko (APC) / Western Gas Partners (WES/WGP)
Source: Company Data
• Anadarko owns a Powder River Basin
coal-bed methane gathering system in
NE Wyoming with over 90
compression stations.
• Western Gas Partners owns and
operates the “MIGC” system, a 256-
mile FERC regulated pipeline from
Recluse to Glenrock, Wyoming.
• Western Gas Partners also operates two
cryogenic processing plants with
expandable capacity to 200MMcf/d in
Sweetwater and Carbon County, WY.
• Western Gas Partners’ Rendevous 338
mile pipeline delivers gas from the
Pinedale and Jonah fields to WES’s
Granger Processing Plant
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Noteworthy Investments in Wyoming: ONEOK, Inc. (OKE)/ONEOK Partners (OKS)
Source: ONEOK Partners
• ONEOK Partners (OKS)
purchased the Sage Creek gathering
facility in September 2013 for
$305MM and expects to make an
additional $135MM in investments
for related infrastructure.
• ONEOK’s Powder River Basin
business has over 400 miles of
gathering pipelines, 65 compressor
stations, and has over 400,000
dedicated acres.
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Noteworthy MLP investments in Wyoming
Upstream:
• LINN Energy (LINE/LNCO) - Investing $225MM in
Jonah, $65MM in Salt Creek in conjunction with its
partnership with Devon. Completed $1.0B Jonah
acquisition from BP in 2012.
• Vanguard Natural Resources (VNR) – Entered the
Pinedale and Jonah fields in late 2013 for $581MM.
Investing ~$75-80MM in growth capex in Pinedale in
2014.
• Memorial Production Partners (MEMP) - $935MM
2Q14 Bairoil acquisition (two CO2 floods in Sweetwater
and Carbon Counties). Estimated to hold 83MMbbls of
net proved reserves (75% oil).
• Legacy Reserves (LGCY) – entered Big Horn Basin and
Wind River Basin with $125.5MM acquisition in 2010
• Breitburn Energy (BBEP) – Allocated $8MM of 2014
capital budget to drill/recomplete seven wells in
Wyoming. 33.6 MMboe of proved reserves.
Source: LINN Energy
34
Noteworthy MLP investments in Wyoming Midstream:
• Crestwood Midstream (CMLP) – Jackalope Gas
Gathering system (PRB): 311k dedicated acres from
Chesapeake (CHK), RKI Exploration (Private), and
China National Offshore Oil (CNOOC).
• Expecting 115% 2014 volume growth to
120MMcf/d.
• CMLP’s Bucking Horse processing plant to alleviate
capacity constraints (4Q14).
• Genesis Energy (GEL) – Pronghorn unit train loading
facility (Converse County) offers takeaway optionality to
Pacific NW, East and West Coasts, as well as the Gulf.
• Two 110Mbbl tanks in operation, a third under
construction.
• Western Gas Partners (WES) – Plans to invest
~$50MM of 2014 capital budget in the PRB.
• Announced expansion of the Highlight gas
processing plant from 60MM to 80MMcf/d in
2Q14.
Source: LINN Energy
35
Source: National Association of Publicly Traded Partnerships, Joint Committee on Taxation
MLP Risks Macro risks dominate
• MLPs are foremost equities and will rise or fall with the market.
• Fed policy and interest rates are of particular concern given their inarguable role as a
tailwind.
Tax Risks Low but Not Zero
• Joint Committee on Taxation (JCT) estimated the tax leakage from energy-related MLPs
to total $6.7B over five years ($1.3B annually), quintupled vs. the 2012 estimate, but
dwarfed by other tax expenditures such as the mortgage interest deduction at $380B, non-
taxed employer provided health insurance at $760B, and income deferral for controlled
foreign corporations $270B.
• Senator Chris Coons' (D-Delaware) "MLP Parity Act" introduced in 2012 seeks to expand
the MLP structure to include renewable energy sources such the generation and storage
of solar, geothermal, and hydro-power.
• MLP qualifying income boundaries currently under review by IRS
Greenhouse Gas, Fracking Regulation are Wildcards
• MLPs will be directly impacted by any deductions to hydrocarbon cost advantages and/or
supply.
• MLPs have been a net beneficiary from coal regulations (more gas than coal MLPs).
36
37 Source: Ethan Bellamy with Commander Michael Brasseur, USN, Captain of the U.S.S. Forth Worth
Exhibit 31 – Default U.S. Energy Policy: Fracking and the U.S. Navy
Geopolitical Risk
Conclusions and Advice
38
Good News
• Capital availability is not a gating factor. The Fed, bond investors and equity investors
want you to spend their money.
• MLPs are ravenous for assets - both midstream and upstream.
• Experienced, talented managers are in short supply.
***Opportunities abound***
Risks, Concerns and Grey Swans
• Hydrocarbons are oversupplied in North America; Demand elasticity<supply elasticity.
• Far from certain how the crude export market will evolve (splitters, light/heavy swaps,
FTA-only exports, unlimited exports).
• Futures tell you less than ever before - Dodd-Frank and loss of some financial
participants.
• Environmental pushback - not about science, but PR.
• Equity bull market is long in the tooth.
• Interest rates very unlikely to go anywhere but up, i.e., you will never have cheaper
financing.
• Washington political economy vs. the real economy
• Geopolitical wildcards
***Act now***
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