Evaluating MLP Performance Across Interest Rate Cycles

Transcription

1 Evaluating MLP Performance Across Interest Rate Cycles RESEARCH TEAM John D. Edwards, CFA (713) Bhavesh Lodaya (212) Dylan Nassano (212) DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment

2 MLP Performance Across Interest Rate Cycles Purpose/Premise Rising interest rate environment -- 94% probability of a 25bp increase in the Federal Fund Target Rate for the upcoming December meeting and roughly 56% probability of Fed Funds to the % by YE 2017 Update of MLP performance to review best way to position a MLP portfolio for a rising interest environment Methodology We looked at 4 time-periods - beginning with early-2005 to mid-2006 increasing rate period, followed by the decreasing rate period between Sept-2007 to early-2009 and we also looked at two periods during which the Fed rate remained unchanged (Aug-2006 to Sept-2007 and Jan-2009 to date). We also looked at a cycle of rising-stable-falling Fed Fund Target Rate and a prolonged stable rate time-period. With crude prices having bottomed in January 2016, we also took a look at performance since January 2016 during which the Fed Fund rate was stable at 0.5% after being raised in December We identified the Top/Bottom quintile (MLP) distributors and calculated their total returns during the same time-period. Following which, we identified the best and worst performers within each sub-sector. (See slide 40 for list of MLPs/GPs used in the analysis) John Edwards, CFA john.edwards@credit-suisse.com ( ) 1

3 What We Found Overall, its difficult to isolate the impact of changes in interest rates to MLP performance - being a commodity driven business MLPs exhibit higher co-relation to commodity cycles than interest rate cycles. Analysis of Each Interest Rate Time-Period Rising Fed Rate (2.25% in Jan 05 to 5.25% in Jul 06): o With an upward movement in commodity prices, MLPs O/P the broader market (AMZX up 18% vs. 9% for S&P) with General Partners and NatGas pipeline MLPs performing best, followed by Liquids Infra and Gathering & Processing. o Top Quintile Distributors - ENLC, ETP, GEL, HEP and WMB. Falling Fed Rate (5.25% in Sept 07 to 0.25% in Jan 09): o MLP performance turned negative, losing less than the broader market (AMZX down 3 vs. 41% for S&P). Crude and natural gas prices were also down during the period. Propane MLPs outperformed with the least losses and the Gathering & Processing MLPs performed the worst. o Top Quintile Distributors ETE, GEL, NGLS, and SEP. Source: Company data, Credit Suisse, Thomson Reuters, Rave John Edwards, CFA john.edwards@credit-suisse.com ( ) 2

4 What We Found (cont d) Stable Fed Rate (5.25% from Aug 06 to Sept 07): o MLPs O/P the broader market (AMZX up 28% vs. 16% for S&P). While crude prices were modestly up (5%), natural gas prices were down by ~25%. o With the beginning of the shale boom during the period, upstream MLPs performed the best followed by Liquids Infra and Gathering & Processing MLPs. o Top Quintile Distributors ETP, GEL, DPM, APU, and ETE. Prolonged Stable Fed Rate (0.25%-0.5 from Jan 09 to date): o MLPs U/P the broader market (AMZX up 152% vs. 224% for S&P), with Gathering & Processing MLPs and General Partners performing the best followed by Liquids Infra MLPs. While crude prices rose 24%, natural gas prices softened 15% during the period. o Top Quintile Distributors GEL, SXL, MMP, WES, OKE, ETE. Source: Company data, Credit Suisse, Thomson Reuters, Rave John Edwards, CFA john.edwards@credit-suisse.com ( ) 3

5 CS Coverage Sort MLP Top 12-Dec-16 Mkt Fwd 2-Yr Annual Current Pick Rating Close Value Price Target NTM Dist Distribution Distribution Yield Rank Price ($MM) CAGR Total Return ETP O $34.39 $ % 18,662 $50 $ % EQM 1 O $71.79 $ % 5,889 $109 $ % 57% PSXP O $45.74 $ % 4,725 $68 $ % 54% WNRL N $20.35 $ ,239 $29 $ % 51% EQGP O $24.03 $ % 6,396 $34 $ % 45% AM 5 O $28.65 $ ,080 $40 $ % 44% TEP 2 O $44.99 $ % 3,282 $61 $ % 43% SMLP O $22.65 $ % 1,666 $30 $ % 43% PBFX N $18.15 $ $24 $ % 42% VTTI N $16.46 $ % 766 $22 $ % VLP O $40.07 $ % 2,699 $55 $ % 42% EPD O $25.64 $ % 53,952 $34 $ % 39% SUN N $24.73 $ % 2,769 $31 $ % 39% MPLX O $32.52 $ % 11,697 $42 $ % 36% BWP 3 O $17.43 $ % 4,363 $23 $ % GPP O $18.75 $ % 596 $23 $ % 32% CQH O $21.73 $ % 5,035 $28 $ % 31% ENLK N $17.21 $ % 5,850 $21 $ % 31% BPL N $64.22 $ % 9,005 $79 $ % KMI 4 O $21.28 $ % 47,505 $27 $ % 29% CNNX N $21.26 $ % 1,240 $26 $ % 28% TLLP N $48.02 $ % 5,003 $57 $ % 27% CQP O $29.29 $ ,795 $35 $ % 25% ETE O $17.10 $ % 17,903 $20 $ % 24% GEL N $34.84 $ % 4,109 $40 $ % 23% TEGP O $25.49 $ % 4,008 $30 $ % 23% WES N $53.85 $ % 7,831 $62 $ % 22% LNG O $43.00 $ ,104 $52 $0.00 NA 21% WPZ N $34.37 $ % 21,042 $38 $ APLP O $16.08 $ % 965 $18 $ % 19% ENBL N $15.82 $ % 6,839 $17 $ % 15% PAA N $32.43 $ % 21,338 $35 $ % 15% OKS N $42.18 $ % 12,056 $45 $ % 14% TRGP N $53.43 $ % 9,662 $57 $ % 13% PAGP N $34.61 $ % 8,347 $37 $ % 13% CPPL O $17.05 $ % 1,716 $18 $ % 11% SPH U $30.31 $ % 1,843 $30 $ % NS U $48.23 $ % 3,785 $48 $ % DPM N $35.25 $ % 4,045 $35 $ % MMP U $71.92 $ % 16,382 $74 $ % WGP N $42.35 $ % 9,271 $43 $ % ENLC U $18.35 $ % 3,304 $18 $ % 4% MEP U $7.20 $ % 332 $6 $ % NSH U $26.95 $ % 1,157 $25 $ % 1% OKE N $57.21 $ ,044 $54 $ % (1%) APU U $44.47 $ % 4,132 $40 $ % (1%) Notes: Denotes a top pick for the next 12 months Median 24% Average 26% CNP U $24.51 $ ,556 $25 $ % NI U $21.88 $ % 7,062 $25 $0.68 NA 17% Prices as of 12/12/16 4

6 NTM Total Return Potential (centered at median) CS MLP Health Scorecard Analysis 7 Health Score to NTM Total Return Potential WPZ MEP ETP GEL APLP TRGP SPH DPM SUN MPLX APU ENLK PAA ENBL NS PBFX TLLP OKS PSXP SMLP TEP AM VTTI EPD BWP GPP BPL KMI CNNX MMP WNRL WES EQM VLP -1 (5) (4) (3) (2) (1) Health Score (centered at median) Source: Company data, Credit Suisse, Thomson Reuters, Rave Prices as of 12/12/16 John Edwards, CFA john.edwards@credit-suisse.com ( ) 5

7 Distribution Growth Master Limited Partnerships & Energy Logistics Tailwinds Abound for MLPs and Midstream MLPs Overweight in 2017 given Attractive Valuation: Sector total return outlook of ~18-28% vs. a relatively expensive S&P 500 with a return outlook of 5 to 7% (per CS forecasts). Expect higher multiples based on ~4 cost savings in oil services and rising crude prices. Natural Gas Demand to Trend Higher: LT trends are for tail winds on natural gas consumption and consequently infrastructure. LNG, Petchem crackers, and electric power to be the key driver of demand; sources for cheap/economical natural gas keep growing. Crude Volume Recovery: Volume is skewed toward the Permian; ~500,000 bpd growth expected in 2017 and volumes could double from 2 mmbpd to 4 mmbpd by A ~$60/bbl crude environment would further accelerate growth and development in the Permian. Lower Corporate Tax Rates / Tax Reform Could Prompt Restructurings: MLPs with GPs could find that they would face a lower cost of capital paying 15% taxes then paying IDRs prompting a wave of restructurings. M&A and consolidate to likely accelerate. Regulatory Permitting Likely to Ease at the Federal Level: We believe the federal regulatory environment becomes more accommodating towards the midstream from the Trump administration. AMZX NTM Total Return Over the next 12 months, we expect the Alerian MLP Index to trade in the 6.5% to 7. range, which together with an expected distribution growth range of , suggests a sector total return outlook of 18-28% Estimated 12-mo Total Return by Yield and Distribution Growth AMZX Yield Next 12 months % % % % 29.4% 24.7% 20.4% 16.4% 12.6% 9.1% % 30.6% 25.9% 21.5% 17.5% 13.7% 10.1% % 27.1% 22.7% 18.6% 14.7% 11.2% % 33.1% 28.3% 23.8% 19.7% 15.8% 12.2% % 34.3% 29.5% 24.9% 20.8% 16.9% 13.2% % 35.6% 30.6% 26.1% 21.9% 17.9% 14.3% MLP EV/EBITDA vs. Crude Efficiency improvements suggest multiples should rise to x EV/EBTIDA 15x 14x 13x 12x 11x 10x 9x 8x 7x 6x EV / NTM EBITDA - MLP Sector vs. Crude Sector Current 10.1x Sector Average 11.3x Crude $140 $120 $100 $80 $60 $40 $20 $0 Excludes Upstream and Other MLPs Sector Median (NTM EBITDA est) Average Crude (WTI $/Bbl) Source: Company data, Credit Suisse, Thomson Reuters, Rave John Edwards john.edwards@credit-suisse.com Bhavesh Lodaya bhavesh.lodaya@credit-suisse.com 6

8 MLP Performance during Interest rate cycles Total Returns (Jan'05 - Jul'06) Fed Rate 2.25% to 5.25% 62% Top Quintile Distributors 9% Bottom Quintile Distributors 18% 15% 21% 69% 17% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) Total Returns (Jan'05 - Jan'09) Fed Rate 2.25%, peaking at 5.25% then lowered to 0.25% 21% 21% Top Quintile Distributors -4 Bottom Quintile Distributors 1-5% -4% -28% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) -5% -1-15% -2-25% -3-35% -4-45% -5 Total Returns (Sept'07 - Jan'09) Fed Rate 5.25% to 0.25% -35% -46% Top Bottom Quintile Quintile Distributors Distributors -29% % -18% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) 7

9 MLP Performance Unchanged Fed rate Total Returns (Jan'09 to date) Fed Rate at 0.25% % 63% Top Bottom Quintile Quintile Distributors Distributors 153% % 24% -15% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) Total Returns (Aug'06 - Sept'07) Fed Rate at 5.25% 59% Top Quintile Distributors 26% 28% Bottom Quintile Distributors 31% 37% 5% -23% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) Total Returns (Jun'14 to date) Fed Rate at 0.25% % % Top Quintile Distributors -36% Bottom Quintile Distributors -29% -39% -28% -52% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) 8

10 MLP Performance Jan 2016 to date Stable Fed rate; WTI Price Bottom Bottom quintile distributors have outperformed % Top Quintile Distributors Total Returns (Jan'16 to date) Fed Rate at % Bottom Quintile Distributors 36% 43% 51% 75% 78% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) Total Returns excl. dist. cuts (Jan'16 to date) Fed Rate at % 75% 29% Top Quintile Distributors Bottom Quintile Distributors 36% 43% 51% 78% AMZX AMZEX MLPXTR WTI (CL1) NatGas (NG1) Including names with distribution cuts, the bottom quintile distributors outperformed with 77% returns vs. 35% returns for the top quintile distributors. The bottom quintile distributor outperformance basically reveals the sharp drop in stock prices for names that were severely impacted by low commodity prices. Source: Company data, Credit Suisse, Thomson Reuters, Rave Excluding names with distribution cuts and allocating no growth names to the bottom quintile, the bottom outperformed by an even larger margin (+7% vs. left chart). The top quintile threshold moved ~100bp higher leading to lesser composition of cos. in that bucket and thus ~6% lower returns (vs. left chart). The bottom o/p basically indicates that the market rewarded balance sheet preservation more than distribution growth since these names were hit by the commodity downturn. John Edwards, CFA john.edwards@credit-suisse.com ( ) 9

11 % Change Crude Decline and ~5 Recovery from Bottom (w/w change) -1 Current cycle worst in a generation Fall in Crude (CL1) Prices and ~5 Recovery Jun '14 to date - Crude Oversupply % -27% -25% -33% -39% Jul '08 to Feb'09 - Financial Crisis Sept '00 to Apr'02 - Tech Bust / 9/11 / Iraq Invasion Oct '97 to Apr'99 - Asian Contagion % -65% -73% Nov '85 to Jun'87 - OPEC Shock No. of Weeks Time Period Summary of events that impacted crude oil Crash Recovery (Weeks) Recovery Time Lag (Weeks) price upside / downside % Weeks 25% 5 75% % % /1985-6/1987 OPEC shock - Rise in prod. -65% /1997-4/1999 Asia recession / OPEC raises prod. quota -53% /2000-4/2002 Tech Bust / 9/11 / US invades Iraq /2008-2/2009 Global Financial Crisis / Weak demand -77% Not recov. to date NA NA 6/ TD Boom in US Shale prod. / OPEC maintains prod. -73% Average - Prior Cycles -63%

12 # of Tranches Avg Return for AMZX for each tranche MLP Yields Spreads Wider than Average Spread = 493 bps as of 12/9/ % 49.6% 39.6% 28.6% % 25.4% 29.6% 13.5% 10.2%8.6% 10.7% 15.4%18.1% Yield Spread Tranche The left chart shows the average 12-month forward return for the AMZX for a given yield between the MLP benchmark and the US 10yr Treasury. Going back to 1/1/1996 sorting into 50 bps tranches we calculated an average return for the AMZX over the next 12 months. The larger the yield spread, the better the AMZX does over the next 12 months. AMZ Yield Since Inception ( TD) Cushing Yield Since Inception ( TD) 16% 14% 12% Current Yield = 7.4% 16% 14% 12% Current Yield = 6.85% 1 1 8% 8% 6% 4% 2% 10 Yr Avg = 6.93% 5 Yr Avg = 6.51% 6% 4% 2% 10 Yr Avg = 6.76% 5 Yr Avg = 6.43% As of 12/9/16; Source: Thomson Reuters, RAVE, Bloomberg, Credit Suisse John Edwards, CFA john.edwards@credit-suisse.com ( ) 11

13 Fed Fund Target Rate and Current Crude Price Environment

14 % change Fed Rate % June 2014 to date Fed Fund Rate - MLP Subsectors (Jun TD) w/w change 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0. Natural Gas Pipelines Liquids Infra Gathering & Processing Upstream Propane Coal Shipping Others GPs MLP HoldCo Fed Fund Target Rate Fed Fund Target rate increased from 0.25% to 0.5 at 12/20/15 Crude (WTI CL1) and NatGas (NG1) lose 52% and 17% over the same period US10yr narrows to ~1.4% from ~2.6% before ending at ~2.5%, currently Index Total Returns AMZX -29% AMZEX -39% MLPXTR -28% S&P 21% 13

15 % change US 10yr Yield and Fed Fund Rate June 2014 to date 4 Fed Fund Rate - MLP Subsectors (Jun TD) w/w change % % % Natural Gas Pipelines Liquids Infra Gathering & Processing Upstream Propane GPs WTI (CL1) NatGas (NG1) Dropdown MLPs (Liq Infra) Fed Fund Target Rate US 10yr Fed Fund Target rate increased from 0.25% to 0.5 at 12/20/15 Crude (WTI CL1) and NatGas (NG1) lose 52% and 17% over the same period US10yr narrows to ~1.4% from ~2.6% before ending at ~2.5%, currently NatGas pipelines (up 4%) outperform, followed by Liquids Infra (down 2%), Gathering & Processing (down 8%), Dropdown MLPs (down 13%), and General Partners (down 2) underperform. 14

16 June 2014 to date Total Returns for Top and Bottom Quintile Distribution Growers Sub-sectors Natural Gas Pipelines Liquids Infrastructure (ex Dropdown MLPs) Top Quintile Distributors TRs TEP (32%, 109%DG), EQM (-19%, 57%DG) SXL (-39%, 4DG) Bottom Quintile Distributors TRs - NA GLP (-47%, -27%DG), MMLP (-37%, -37%DG), PAA (-33%, -15%DG) Bellwether MLPs (Our LT Picks) EPD (-22%, 13%DG), PAA (-33%, -15%DG), MMP (-4%, 31%DG) Dropdown MLPs (Liquids Infra) Gathering & Processing General Partners MPLX (-41%, 5DG), VLP (-11%, 73%DG), PSXP (-35%, 76%DG), PBFX (-19%, 47%DG), TLLP (-2, 42%DG) - NA - RRMS (-33%, -25%DG), AMID (-29%, -11%DG) CEQP (-76%, 336%DG), ETE (-28%, 5DG), WGP (-24%, 65%DG), KMI (-32%, -71%DG), WMB (-39%, -53%DG) NA ETE (-28%, 5DG), KMI (-32%, -71%DG) *DG = Distribution growth during the period. Top Quintile Distribution Growth >=4 Bottom Quintile Distribution Growth < 23% Average Distribution Growth during the period (MLPs and GPs ex. Coal, Shipping, Other MLPs) 15

17 % change Fed Rate % January 2016 to date 10 Fed Fund Rate - MLP Subsectors (Jan TD) w/w change 0.6% 8 0.5% 6 0.4% 4 0.3% 2 0.2% 0.1% Natural Gas Pipelines Liquids Infra Gathering & Processing Upstream Propane Coal Shipping Others GPs MLP HoldCo Fed Fund Target Rate Fed Fund Target rate unchanged at 0.5 Crude (WTI CL1) and NatGas (NG1) gain 75% and 78% over the same period US10yr narrows to ~1.4% from ~2. before ending at ~2.5%, currently Index Total Returns AMZX 36% AMZEX 43% MLPXTR 51% S&P 23% 16

18 % change US 10yr Yield and Fed Fund Rate January 2016 to date 10 8 Fed Fund Rate - MLP Subsectors (Jan TD) w/w change % % % Natural Gas Pipelines Liquids Infra Gathering & Processing Upstream Propane GPs WTI (CL1) NatGas (NG1) Dropdown MLPs (Liq Infra) Fed Fund Target Rate US 10yr Fed Fund Target rate unchanged at 0.5 Crude (WTI CL1) and NatGas (NG1) gain 75% and 78% over the same period US10yr narrows to ~1.4% from ~2. before ending at ~2.5%, currently General Partners (up 87%) outperform, followed by Gathering & Processing (up 8), NatGas pipelines (up 5), Liquids Infra (up 37%), and dropdown MLPs (up 4%). 17

19 January 2016 to date Total Returns for Top and Bottom Quintile Distribution Growers Sub-sectors Natural Gas Pipelines Liquids Infrastructure (ex Dropdown MLPs) Dropdown MLPs (Liquids Infra) Gathering & Processing Upstream General Partners *DG = Distribution growth during the period. Top Quintile Distributors TRs TEP (4, 13%DG), EQM (16%, 9%DG) Bottom Quintile Distributors TRs - NA - MMLP (24%, -38%DG), PAA (69%, -21%DG) DKL (7%, 7%DG), PSXP (-15%, 1DG), SHLX (-21%, 12%DG), TLLP (15%, 8%DG), VLP (-8%, 13%DG) AM (46%, 13%DG), CNNX (131%, 7%DG), RMP (131%, 13%DG), BSM (39%, 1DG), VNOM (15%, 39%DG) EQGP (23%, 23%DG), TEGP (7, 25%DG) - NA RRMS (119%, -39%DG) 2% Average Distribution Growth during the period (MLPs and GPs ex. Coal, Shipping, Other MLPs) Bellwether MLPs (Our LT Picks) EPD (21%, 3%DG), PAA (69%, -21%DG), MMP (16%, 4%DG) NA - NA PAGP (77%, -11%DG), WMB (98%, -69%DG) Top Quintile Distribution Growth >=7% Bottom Quintile Distribution Growth < ETE (109%, DG), KMI (66%, DG) 18

20 Rising Fed Fund Target Rate

21 % change US 10yr Yield and Fed Fund Rate % change Jan 05 to July 06: Rising Fed Funds, Rising Oil/Gas Prices, MLPs Rise 9 Rising Fed Fund Rate - MLP Indices (Jan Jul 2006) w/w change NatGas (NG1) Alerian MLP TR Index Alerian Equal Weight MLP TR Index Cushing MLP TR Index S&P 500 TR Index WTI (CL1) Fed Fund Target Rate US 10yr Fed Fund Target rate increased from 2.25% to 5.25% Crude (WTI CL1) +69% NatGas (NG1)+17% US10yr yield increases from ~4.2% to ~5% Index Total Returns AMZX 18% AMZEX 15% MLPXTR 21% S&P 9% 20

22 % change US 10yr Yield and Fed Fund Rate January 2005 to July 2006 GPs and Nat Gas P/Ls best 9 Rising Fed Fund Rate - MLP Subsectors (Jan Jul 2006) w/w change Natural Gas Pipelines Liquids Infra Gathering & Processing Propane GPs WTI (CL1) Fed Fund Target Rate US 10yr Fed Fund Target rate increased from 2.25% to 5.25% Crude (WTI CL1) and NatGas (NG1) gain 69% and 17% over the same period US10yr yield increases from ~4.2% to ~5% General Partners (up 44%) and NatGas pipelines (up 36%) perform the best. Liquids Infra (up 19%) least volatile 21

23 January 2005 to July 2006 Total Returns for Top and Bottom Quintile Distribution Growers Sub-sectors Natural Gas Pipelines Liquids Infrastructure (ex Dropdown MLPs) Gathering & Processing Top Quintile Distributors TRs Bottom Quintile Distributors TRs ETP (59%, 62%DG) TCP (-3%, 4%DG) NA HEP (27%, 33%DG), GEL (16%, 33%DG) EEP (1%, DG) Bellwether MLPs ) EPD (14%, 15%DG), PAA (32%, 22%DG), MMP (3, 29%DG) CPNO (89%, 88%DG)** - MWE (4%, 24%DG) Upstream NA NA NA Propane - FGP (25%, DG), APU (14%, 5%DG), SPH (7%, 4%DG) General Partners ENLC (132%, 64%DG), WMB (49%, 8DG) NA ETE (NA), KMI (NA) *DG = Distribution growth during the period. **acquired by KMI (May 2013) Top Quintile Distribution Growth >=33% Bottom Quintile Distribution Growth <9% 26% Average Distribution Growth during the period (MLPs and GPs ex. Coal, Shipping, Other MLPs) 22

24 Falling Fed Fund Target Rate

25 % change US 10yr Yield and Fed Fund Rate Sept Jan 2009: Falling Fed Funds, Falling Oil/Gas, MLPs Fell Falling Fed Fund Rate - MLP Indices (Sept Jan 2009) w/w change Alerian MLP TR Index Alerian Equal Weight MLP TR Index Cushing MLP TR Index S&P 500 TR Index WTI (CL1) NatGas (NG1) Fed Fund Target Rate US 10yr Fed Fund Target rate decreased from 5.25% to 0.25% Crude (WTI CL1) and NatGas (NG1) lose 39% and 18% over the same period US10yr yield decreases from ~4.5% to ~2.6% Index Total Returns AMZX -3 AMZEX -4 MLPXTR -3 S&P -41% 24

26 Yield Spreads Yields and Fed Rate % September 2007 to January Falling Fed Fund Rate - MLP Index Yield Spreads (Sept Jan 2009) w/w change AMZX Spread to US 10yr AMZEX Spread to US 10yr MLPXTR Spread to US 10yr Fed Fund Target Rate US 10yr The US 10yr plummeted to under 2% from 4% impacting MLP risk premiums. Yield spreads between MLP indices and the US 10yr started widening significantly by 4Q08. The spread to AMZEX peaked to ~1600bp, when the US10yr was at its lowest. 25

27 % change US 10yr Yield and Fed Fund Rate September 2007 to January Falling Fed Fund Rate - MLP Indices (Sept Jan 2009) w/w change Natural Gas Pipelines Liquids Infra Gathering & Processing Upstream Propane GPs WTI (CL1) NatGas (NG1) Fed Fund Target Rate US 10yr Fed Fund Target rate decreased from 5.25% to 0.25% Crude (WTI CL1) and NatGas (NG1) lose 39% and 18% over the same period US10yr yield decreases from ~4.5% to ~2.6% Each MLP sub-sector underperforms although Propane is least volatile and loses the least (down 9%). Gathering & Processing lose the most (down 57%). 26

28 September 2007 to January 2009 Total Returns for Top and Bottom Quintile Distribution Growers Sub-sectors Natural Gas Pipelines Liquids Infrastructure (ex Dropdown MLPs) Gathering & Processing Top Quintile Distributors TRs Bottom Quintile Distributors TRs SEP (-2, 23%DG) DEP (-25%, 5%DG) NA GEL (-6, 25%DG) GLP (-52%, 2%DG), EEP (-3, 4%DG) Bellwether MLPs EPD (-17%, 1DG), PAA (-24%, 8%DG), MMP (-13%, 1DG) NGLS (-6, 53%DG) APL (-77%, -84%DG) MWE (-62%, 16%DG) Upstream NA NA NA Propane NA APU (-5%, -26%DG), FGP (-19%, DG) General Partners ETE (-48%, 41%DG), BGH (-44%, 32%DG), NRGP (-42%, 32%DG) NA ETE (-48%, 41%DG), KMI (NA) *DG = Distribution growth during the period. Top Quintile Distribution Growth >=21% Bottom Quintile Distribution Growth <6% 6% Average Distribution Growth during the period (MLPs and GPs ex. Coal, Shipping, Other MLPs) 27

29 Stable Fed Fund Target Rate

30 % change US 10yr Yield and Fed Fund Rate Aug 2006 to Sept 2007: Flat Fed Funds, Oil up, gas down, MLPs rise 6 Stable Fed Fund Rate - MLP Indices (Aug Sept 2007) w/w change 5.4% % % 4.6% 4.4% % % Fed Fund Target rate unchanged at 5.25% Crude (WTI CL1) gains 5% while NatGas (NG1) loses 23% over the same period US10yr yield decreases from ~5% to ~4.4% (peaks at 5.2%) Index Total Returns Alerian MLP TR Index Alerian Equal Weight MLP TR Index Cushing MLP TR Index S&P 500 TR Index WTI (CL1) NatGas (NG1) Fed Fund Target Rate US 10yr AMZX 28% AMZEX 31% MLPXTR 37% S&P 16% 29

31 Yields August 2006 to September Stable Fed Fund Rate - MLP Index Yields (Aug Sept 2007) w/w change Fed Fund Target Rate US 10yr AMZX Yield AMZEX Yield MLPXTR Yield The end of the above time period marked the beginning of the shale gas boom. MLP sub-sectors returned between 20-4 even with a modest increase in crude prices and lower gas prices. Index Yields AMZX 6.1% AMZEX 5.6% MLPXTR

32 % change US 10yr Yield and Fed Fund Rate August 2006 to September Stable Fed Fund Rate - MLP Subsectors (Aug Sept 2007) w/w change 5.4% 8 5.2% % 2 4.6% 4.4% % % Natural Gas Pipelines Liquids Infra Gathering & Processing Upstream Propane GPs WTI (CL1) NatGas (NG1) Fed Fund Target Rate US 10yr Fed Fund Target rate unchanged at 5.25% Crude (WTI CL1) gains 5% while NatGas (NG1) loses 23% over the same period US10yr yield decreases from ~5% to ~4.4% (peaks at 5.2%) Upstream outperforms (up 78%) the space followed by Liquids Infra (up 38%) and Gathering & Processing (up 37%). General Partners (up 23%) underperform. 31

33 August 2006 to September 2007 Total Returns for Top and Bottom Quintile Distribution Growers Sub-sectors Natural Gas Pipelines Liquids Infrastructure (ex Dropdown MLPs) Gathering & Processing Top Quintile Distributors TRs Bottom Quintile Distributors TRs ETP (25%, 2DG) - NA GEL (128%, 35%DG) DPM (67%, 36%DG), CPNO (63%, 25%DG)** BPL (27%, 6%DG), EEP (21%, 3%DG) RGP (4, 5%DG)***, OKS (3, 4%DG) Upstream NA NA NA Propane APU (26%, 48%DG) FGP (11%, DG) NA Bellwether MLPs EPD (2, 7%DG), PAA (31%, 12%DG), MMP (28%, 9%DG) MWE (51%, 13%DG) General Partners ETE (46%, 57%DG), NRGP (56%, 46%DG) NA ETE (46%, 57%DG), KMI (NA) *DG = Distribution growth during the period. **acquired by KMI (May 2013) ***acquired by ETP (April 2015) Top Quintile Distribution Growth >=19% Bottom Quintile Distribution Growth <7% 15% Average Distribution Growth during the period (MLPs and GPs ex. Coal, Shipping, Other MLPs) 32

34 % change US 10yr Yield and Fed Fund Rate January 2009 to date 40 Fed Fund Rate - MLP Indices (Jan TD) w/w change 4.5% % % % % 0. Fed Fund Target rate increased from 0.25% to 0.5 at 12/20/15 Crude (WTI CL1) gains 24% while NatGas (NG1) loses 15% over the same period US10yr yield decreases from ~2.8% to ~2.5% (peaks at ~3.9%) Index Total Returns Alerian MLP TR Index Alerian Equal Weight MLP TR Index Cushing MLP TR Index S&P 500 TR Index WTI (CL1) NatGas (NG1) Fed Fund Target Rate US 10yr AMZX 152% AMZEX 15 MLPXTR 204% S&P 224% 33

35 % change US 10yr Yield and Fed Fund Rate January 2009 to date G&P and GPs best 70 Fed Fund Rate - MLP Subsectors (Jan TD) w/w change 4.5% % % % % 0. Natural Gas Pipelines Liquids Infra Gathering & Processing Upstream Propane GPs WTI (CL1) NatGas (NG1) Fed Fund Target rate increased from 0.25% to 0.5 at 12/20/15 Crude (WTI CL1) gains 24% while NatGas (NG1) loses 15% over the same period US10yr yield decreases from ~2.8% to ~2.5% (peaks at ~3.9%) Gathering & Processing outperform (up 549%, most volatile) followed by General Partners (up 418%) and Liquids Infra (up 343%). Propane (up 69%) was least volatile. 34

36 January 2009 to date Total Returns for Top and Bottom Quintile Distribution Growers Sub-sectors Natural Gas Pipelines Liquids Infrastructure (ex Dropdown MLPs) Gathering & Processing Top Quintile Distributors TRs Bottom Quintile Distributors TRs - BWP (34%, -79%DG) NA GEL (358%, 107%DG), SXL (263%, 201%DG), MMP (409%, 136%DG) NS (69%, 4%DG), GLP (139%, -5%DG), MMLP (107%, -33%DG) WES (364%, 182%DG) - NA Upstream - - NA Propane - SPH (47%, 1DG) NA Bellwether MLPs (Our LT Picks) EPD (227%, 51%DG), PAA (164%, 22%DG), MMP (409%, 136%DG) General Partners OKE (437%, 208%DG), ETE (398%, 117%DG) CEQP (-17%, -7% DG) ETE (398%, 117%DG), KMI (NA) *DG = Distribution growth during the period. Top Quintile Distribution Growth >=98% Bottom Quintile Distribution Growth <13% 54% Average Distribution Growth during the period (MLPs and GPs ex. Coal, Shipping, Other MLPs) 35

37 Fed Fund Target Rate Cycle [Rise-Stable-Fall]

38 % change US 10yr Yield and Fed Fund Rate January 2005 to January Fed Fund Rate - MLP Indices (Jan Jan 2009) w/w change Fed Fund Target rate increased from 2.25% to 5.25% and then decreased to 0.25% Crude (WTI CL1) and NatGas (NG1) lose 4% and 28% over the same period US10yr yield decreases from ~4.2% to ~2.8% (peaks at 5.2%) Alerian MLP TR Index Alerian Equal Weight MLP TR Index Cushing MLP TR Index S&P 500 TR Index WTI (CL1) NatGas (NG1) Fed Fund Target Rate US 10yr Index Total Returns - AMZX 1 AMZEX -5% MLPXTR 21% S&P -26% 37

39 % change US 10yr Yield and Fed Fund Rate January 2005 to January Fed Fund Rate - MLP Subsectors (Jan Jan 2009) w/w change Natural Gas Pipelines Liquids Infra Gathering & Processing Propane GPs WTI (CL1) NatGas (NG1) Fed Fund Target Rate US 10yr Fed Fund Target rate increased from 2.25% to 5.25% and then decreased to 0.25% Crude (WTI CL1) and NatGas (NG1) lose 4% and 28% over the same period US10yr yield decreases from ~4.2% to ~2.8% (peaks at 5.2%) NatGas pipelines (up 41%) and Propane (up 39%) outperform. Gathering & Processing was down 22%. 38

40 January 2005 to January 2009 Total Returns for Top and Bottom Quintile Distribution Growers Sub-sectors Natural Gas Pipelines Liquids Infrastructure (ex Dropdown MLPs) Gathering & Processing Top Quintile Distributors TRs Bottom Quintile Distributors TRs ETP (56%, 117%DG) - NA Bellwether MLPs (Our LT Picks) GEL (16%, 125%DG), EEP (-9%, 7%DG) EPD (16%, 34%DG), PAA (35%, 48%DG), MMP (5, 56%DG) CPNO (54%, 188%DG)**, MWE (-16%, 64%DG) APL (-51%, -79%DG), ENLK (-6, -10DG) Upstream NA NA NA Propane - FGP (15%, DG) NA MWE (-16%, 64%DG) General Partners WMB (-4%, 12DG) ENLC (-92%, -10DG) ETE (NA), KMI (NA) *DG = Distribution growth during the period. **acquired by KMI (May 2013) Top Quintile Distribution Growth >=63% Bottom Quintile Distribution Growth <14% 38% Average Distribution Growth during the period (MLPs and GPs ex. Coal, Shipping, Other MLPs) 39

41 List of MLPs/GPs Includes names that no longer trade Natural Gas Pipelines Liquids Infra Dropdowns (Liq Infra) Gathering & Processing Upstream Propane General Partners BWP BPL DKL AM ARP APU BGH CPPL EEP MPLX AMID BSM FGP CEQP DEP EPD PBFX APL ENP SPH ENLC ETP GEL PSXP CMLP EVEP EQGP EQM GLP SHLX CNNX LGCY ETE KMP HEP TLLP CPNO LINE KMI SEP MMLP VLP DPM MEMP OKE TCP MMP VTTI ENBL NSLP PAGP TEP NGL WNRL ENLK VNOM SE WPZ NS EQM TEGP PAA MEP WGP SRLP MWE NRGP SXL NGLS NSH TLP OKS WMB WPT PTXP TRGP RGP RMP RRMS SMLP WES 40

42 Disclosures

43 Companies Mentioned (Price as of 12-Dec-2016) AmeriGas Partners, L.P. (APU.N, $44.47) American Mids (AMID.N, $16.3) Antero Midstream Partners LP (AM.N, $28.65) Archrock Partners, LP (APLP.OQ, $16.08) Atlas Res (ARP.N^G16) Atlas Res (ARP.N^G16) Black Stone Minerals L.P. (BSM.N, $18.67) Boardwalk Pipeline Partners, LP (BWP.N, $17.43) Buckeye GP (BGH.N^K10) Buckeye GP (BGH.N^K10) Buckeye Partners, LP (BPL.N, $64.22) CONE Midstream Partners, LP (CNNX.N, $21.26) Columbia Pipeline Partners, LP (CPPL.N, $17.05) Crestwood Equity Partners LP (CEQP.N, $23.55) Crestwood Mid (CMLP.N^J13) Crestwood Mid (CMLP.N^J13) DCP Midstream Partners, LP (DPM.N, $35.25) Delek Logistics (DKL.N, $30.45) Duncan Energy Partners, LP (DEP.N^I11) Duncan Energy Partners, LP (DEP.N^I11) EQT GP Holdings, LP (EQGP.N, $24.03) EQT Midstream Partners, LP (EQM.N, $71.79) EV Energy Partners, LP (EVEP.OQ, $2.4) EnLink Midstream (ENLC.N, $18.35) EnLink Midstream Partners (ENLK.N, $17.21) Enable Midstream Partners (ENBL.N, $15.82) Enbridge Energy Partners, LP (EEP.N, $24.01) Encore Enrgy (ENP.N^L11) Encore Enrgy (ENP.N^L11) Energy Transfer Equity, LP (ETE.N, $17.1) Energy Transfer Partners, LP (ETP.N, $34.39) Enterprise Products Partners, LP (EPD.N, $25.64) Ferrellgas Part (FGP.N, $6.35) Genesis Energy, LP (GEL.N, $34.84) Global Partners (GLP.N, $15.85) Holly Energy Partners, L.P. (HEP.N, $33.8) Inergy Hldgs (NRGP.N^K10) Inergy Hldgs (NRGP.N^K10) Kemper (KMPR.N, $45.0) Kinder Morgan, Inc. (KMI.N, $21.28) Legacy Reserves (LGCY.OQ, $2.36) Lindows (LINE.OQ^H04) Lindows (LINE.OQ^H04) MPLX LP (MPLX.N, $32.52) Magellan Midstream Partners, LP (MMP.N, $71.92) MarkWest Energy Partners, LP (MWE.N^L15) MarkWest Energy Partners, LP (MWE.N^L15) Martin Midstream (MMLP.OQ, $18.45) Midcoast Energy Partners, L.P. (MEP.N, $7.2) Mmrl Pdtn Ptnr (MEMP.OQ, $0.54) NGL Energy Ptns (NGL.N, $18.75) New Src Engy Prt (NSLP.N^I15) New Src Engy Prt (NSLP.N^I15) NuStar Energy, LP (NS.N, $48.23) NuStar GP Holdings, LLC (NSH.N, $26.95) ONEOK Partners, LP (OKS.N, $42.18) ONEOK, Inc. (OKE.N, $57.21) PBF Logistics, LP (PBFX.N, $18.15) Penntex Midstr (PTXP.OQ, $14.85) Phillips 66 Partners, LP (PSXP.N, $45.74) Plains All American Pipeline, LP (PAA.N, $32.43) Plains GP Holdings, LP (PAGP.N, $34.61) Regency Energy Partners, LP (RGP.N^D15) Regency Energy Partners, LP (RGP.N^D15) Rice Midstrm (RMP.N, $22.08) Rose Rock (RRMS.N^I16) Rose Rock (RRMS.N^I16) Shell Midstream (SHLX.N, $27.5) Spectra Energy (SE.N, $40.94) Spectra Energy Partners, LP (SEP.N, $44.7) Sprague Res (SRLP.N, $26.85) Suburban Propane Partners, LP (SPH.N, $30.31) Summit Midstream Partners, LP (SMLP.N, $22.65) Sunoco Logistics Partners, LP (SXL.N, $23.13) TC PipeLines (TCP.N, $52.2) Tallgrass Energy GP, LP (TEGP.N, $25.49) Tallgrass Energy Partners, L.P. (TEP.N, $44.99) Targa Resources Corp. (TRGP.N, $53.43) Tesoro Logistics, LP (TLLP.N, $48.02) TransMontaigne (TLP.N, $43.1) VTTI Energy Partners, LP (VTTI.N, $16.46) Valero Energy Partners, LP (VLP.N, $40.07) Viper Energy Partners, LP (VNOM.OQ, $16.5) Western Gas Equity Partners, L.P. (WGP.N, $42.35) Western Gas Partners, LP (WES.N, $53.85) Western Refining Logistics, LP (WNRL.N, $20.35) Williams Companies, Inc (WMB.N, $29.93) Williams Partners, LP (WPZ.N, $34.37) World Point Terminals, LP (WPT.N, $16.31) Disclosure Appendix Analyst Certification I, John Edwards, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regio nal benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equ al to 5%. A Neutral may be assigned where the ETR is between - 5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. 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Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: See the Companies Mentioned section for full company names The subject company (PSXP.N, ENBL.N, CPPL.N, WNRL.N, VNOM.OQ, TLLP.N, CNNX.N, ENLC.N, PBFX.N, ENLK.N, VTTI.N, VLP.N, NSH.N, HEP.N, NS.N, AM.N, APU.N, BSM.N, BWP.N, DPM.N, EEP.N, EQM.N, ETE.N, ETP.N, KMI.N, MEP.N, MMP.N, OKE.N, OKS.N, PAA.N, SEP.N

44 SMLP.N, SPH.N, SXL.N, TEP.N, TRGP.N, WES.N, WMB.N, WPZ.N, WGP.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (PSXP.N, ENBL.N, CPPL.N, VNOM.OQ, TLLP.N, ENLC.N, PBFX.N, ENLK.N, VLP.N, AM.N, BSM.N, EEP.N, EQM.N, ETE.N, ETP.N, KMI.N, MEP.N, OKS.N, SEP.N, SMLP.N, SXL.N, TEP.N, TRGP.N, WES.N, WMB.N, WPZ.N, WGP.N) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (PSXP.N, VNOM.OQ, TLLP.N, PBFX.N, VLP.N, AM.N, TEP.N, TRGP.N, WES.N, WGP.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (PSXP.N, ENBL.N, CPPL.N, VNOM.OQ, TLLP.N, ENLC.N, PBFX.N, ENLK.N, VLP.N, AM.N, BSM.N, EEP.N, EQM.N, ETE.N, ETP.N, KMI.N, MEP.N, OKS.N, SEP.N, SMLP.N, SXL.N, TEP.N, TRGP.N, WES.N, WMB.N, WPZ.N, WGP.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (PSXP.N, MPLX.N, ENBL.N, CPPL.N, WNRL.N, VNOM.OQ, TLLP.N, CNNX.N, ENLC.N, PBFX.N, ENLK.N, VTTI.N, EQGP.N, VLP.N, NSH.N, HEP.N, NS.N, AM.N, APLP.OQ, APU.N, BSM.N, BWP.N, DPM.N, EEP.N, EQM.N, ETE.N, ETP.N, GEL.N, KMI.N, MEP.N, MMP.N, OKE.N, OKS.N, PAA.N, SEP.N, SMLP.N, SPH.N, SXL.N, TEGP.N, TEP.N, TRGP.N, WES.N, WMB.N, WPZ.N, WGP.N) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (KMI.N). 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