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1 Advisory Research 8235 Forsyth Blvd. Suite 700 St. Louis, MO Tel: These materials are being furnished for informational purposes and are not to be distributed. The materials may not be reproduced or disseminated without the express prior consent of Advisory Research, Inc.

2 MLP investment vehicle flows & equity issuance breakdown 30 Fund Flows vs. Equity Issuance $ Raised ($ in Billions) Fund Flows Equity Raised Period: 1/1/2011 to 4/30/2017 Data Source: Bloomberg, U.S. Capital, UBS Global Energy Group ADVISORY RESEARCH 2

3 The MLP investment vehicle market has shifted from closed-end funds to ETNs, ETFs and open-end funds Period: 1/1/2011 to 4/30/2017 Data Source: Bloomberg Note: Closed End Fund market value uses common net assets. ADVISORY RESEARCH 3

4 A growing number of energy infrastructure companies are organizing as corporations $1,200 $1,000 Market Cap ($ in billions) $800 $600 $400 $200 $ Total MLP Mkt Cap Total C-Corp Mkt Cap Period: 1/1/2011 to 4/30/2017 Data Source: FactSet Research Systems ADVISORY RESEARCH 4

5 MLP investment vehicle flow has favored active management vs. passive management 100% MLP Active vs. Passive Flows 90% 80% 70% 64% 60% 50% 40% 30% 20% 36% 10% 0% 2011 thru April 2017 Passive Active Period: 1/1/2011 to 4/30/2017 Data Source: Bloomberg ADVISORY RESEARCH 5

6 Generally, MLP active management has been beneficial Over a 5-year period ended 3/31/2017: The Alerian MLP Index ranks in the 66 th percentile versus MLP Open- End Funds. The Alerian MLP Index ranks in the 86 th percentile versus asset manager MLP Separately Managed strategies. Period ending 3/31/2017 Data Source: evestment, Morningstar Energy Limited Partnership Category ADVISORY RESEARCH 6

7 Introduction Revisiting MLP Simplifications Last year our colleagues discussed the simplification trend, highlighting the following points: Simplification transactions are not new, and tend to happen in difficult markets GP/LP structure is not going away immediately, and it actually works well when growth is strong and cost of equity is cheap Recent IPOs had GP/LP structures, and one GP just went public The MLP universe is becoming more diverse as simplification transactions evolve from IDR buy-ins to c-corp roll-ups to c-corp tracker securities We echo last year s comments but think an update is warranted given the bevy of large-cap announcements since May 2016 (over 20% of the AMZ) Plains All American MPLX Williams ONEOK Tesoro? What worked? What didn t? What s next? 1

8 Key Themes in Many Simplifications 1 High GP Burden Impairs an MLP s cost of capital and ability to pay, particularly on a relative basis IDRs or promoted economic incentives are unsustainable as companies grow and mature 2 Underlying MLP Valuations Challenged GP impairs ability to grow -> reduces valuation for MLP -> further reducing ability to grow (it s circular) Larger and larger projects required to grow, while the funding itself exacerbates the promote issue 3 Leverage Issues Rating agencies and creditors like the increased scale, improved cost of capital, stronger credit metrics, enhanced growth prospects, and greater liquidity / access to capital Allows MLP to re-set distributions if appropriate 4 GP Public Security Trading Wide v. Public LP Simplification is a self-controlled option Wide yield spreads and valuation anomalies can be conducive to structuring a potentially accretive simplification transaction 2

9 Comparison of Recent Simplifications Date 08/10/14 08/10/14 05/06/15 11/03/15 05/31/16 07/11/16 01/03/17 01/09/17 02/01/17 Transaction Structure Acquisition of public LP Acquisition of public LP Acquisition of public LP Acquisition of public LP Acquisition of public LP IDR Buy-in IDR Buy-in IDR Buy-in Acquisition of public LP Equity to be Issued $24.7bn $4.8bn $4.1bn $6.7bn $0.3bn $6.6bn NA $11.4bn $9.3bn New Shareholders PF Ownership 32% 6% 73% 65% 23% 35% NA 72% 54% GP Yield Prior to Announcement 4.76% 4.76% 8.06% 6.25% 6.10% 9.55% NA 2.48% 4.46% LP Yield Prior to Announcement 6.92% 7.74% 10.25% 10.82% 11.00% 10.45% 5.83% 8.65% 7.32% Spread (bps) NA day Premium / (Discount) 12.0% 15.4% 16.9% 18.4% 6.0% 6.0% NA NA 22.4% 20-day Premium / (Discount) 9.6% 11.2% 19.3% 15.5% 15.5% 0.1% NA NA (3.4%) PF Credit Rating BBB- / Baa3 BBB- / Baa3 NA NA B+ / B2 BBB / Baa3 BBB- / Baa3 Ba2 / BB Ba1 / BB+ Forward Year MLP Dist. Coverage 0.95x 1.01x 1.03x 1.10x 1.15x 0.87x 1.14x 0.99x 1.10x GP / IDR Dist. Take 46.0% 28.1% 10.4% 30.4% 19.6% 31.3% 23.0% 31.2% 32.2% LTM Debt / LTM EBITDA 4.58x 4.17x 4.50x 4.80x 4.20x 4.60x 3.36x 4.30x 4.30x Cash Flow Accretion? Immediate Dividend Raise? Dividend Guidance Period NA Q NA Investment Grade? Removal of IDRs? KMP El Paso Lower Cost of Capital? Simplified Organization? PF Scale $140bn $140bn $8bn $15bn $15bn $30bn $22bn $29bn $31bn Several Years 2021 Source: Citi Investment Banking Since MLPA

10 Historical Performance of Corporate Simplifications Simplification transactions, in general, have been well-received by the market (as seen in the table below) Time is on your side the first movers group all have outperformed the index on a total return basis by a wide margin as the benefits of simplification have had time to play out The Kinder-led roll-up wave group has had mixed results with timing and broader market factors playing a significant role in performance to date The most recent deals are still in the early stages of execution, but as a whole have seen slight outperformance relative to the index Post-announcement performance (relative to AMZ) Date T+1 T+5 T+30 T+90 T+180 To date First-movers MWE 09/05/07 2.4% 3.5% (4.3%) 5.5% 14.0% 89.7% MMP 03/03/09 (8.7%) (6.8%) (11.2%) (11.6%) (14.3%) 447.7% BPL 06/11/10 0.3% 0.9% 1.7% 1.0% 0.7% 26.3% EPD 09/07/10 (0.9%) (1.3%) 1.0% (2.1%) (3.9%) 56.1% GEL 12/28/10 1.5% (0.4%) 2.3% 1.3% 6.3% 49.7% The Kinder-led "roll-up" wave KMI 08/10/14 5.3% 9.3% (2.0%) 5.8% 23.1% (16.8%) CEQP 05/06/15 0.7% (3.6%) (9.4%) (19.4%) (22.0%) (19.3%) TRGP 11/03/15 1.4% 0.3% (10.6%) (30.4%) (5.8%) 4.8% SEMG 05/31/16 0.2% 1.4% (2.7%) (3.3%) 11.7% (2.2%) Since 2016 MLPA PAA 07/11/16 7.6% 6.2% 9.1% 19.6% 20.0% 5.5% MPLX 01/03/17 0.2% (0.0%) 2.0% 1.6% 0.2% 0.2% WPZ 01/09/17 1.5% 5.0% 3.0% 7.5% 7.9% 7.9% OKE 02/01/17 2.4% 1.1% 4.8% 1.9% 1.0% 1.0% 4

11 Who s Next? High GP Burden (>=20% 2017E GP take) Valuation Less than Ideal ( yield >6.5%) Others High Leverage (>3.5x 2017 FYE/NTM EBITDA) Low Coverage (<1.1x 2017 FYE) GP Wide to MLP (>=2.5%) each situation is unique, and just because they should, doesn t mean they would 5

12 Conclusion Revisiting MLP Simplifications We do think IDRs serve an important purpose in the early stages of an MLP they incentivize growth for both the LP and GP but eventually (if the MLP has been successful in growing its distribution and hopefully generated some return for its investors along the way), simple math dictates that it does become a burden on cost of capital Tend to work best, and longest, in a sponsored MLP situation In an increasingly competitive and lower for longer environment, we believe corporate structure and cost of capital will play major roles in determining winners and losers To the extent capital markets remain tight, cost and availability of cheap capital will become even more important The most successful transactions, we believe, will be those that: are decisive and permanent a one-time approach are transformative are transparent provide for ample cushion in coverage and leverage position the pro forma company to compete for competitive capital, M&A, and projects 6

13 MLP Market Trends Perspective from Fund Managers June 2, 2017 For institutional use only, not for redistribution 2017 Tortoise.

14 TMLP index vs crude production U.S. Crude Production (kb/d) 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 1,600 1,500 1,400 1,300 1,200 1,100 1, TMLPT Index Level US Crude Production MLP 2 Source: Bloomberg, Company Filings as of 3/31/2017. TMLP = Tortoise Midstream MLP Index

15 Seasonal period of declines for U.S. crude inventories 16,000 US Weekly Crude Oil Inventory Change 14,000 12,000 10,000 Change in Crude Oil Inventories (kbbls) 8,000 6,000 4,000 2,000 0 (2,000) (4,000) (6,000) (8,000) (10,000) (12,000) 5 Year Range 2017 Stock Change Source: Energy Information Administration as of 5/26/

16 Pipeline Volumes Resilient Y/Y % Change 30.0% 20.0% 10.0% 0.0% (10.0%) (20.0%) (30.0%) (40.0%) (50.0%) (60.0%) % change of crude volumes transported vs. price and production PAA EEP SXL WTI Crude Price U.S. Crude Production Crude volumes transported by top midstream service providers grew during the most recent downturn despite falling crude oil prices and declining domestic production Source: Bloomberg, Company Filings, EIA As of 12/31/16 4

17 Midstream: Growth through the cycle EBITDA Growth (y/y) Total return* 40% EBITDA Growth ( % y/y) 80% 60% 40% 20% 0% (20%) (40%) Total Return (%) 20% 0% (20%) (40%) (60%) (80%) (60%) E CAGR Midstream E&P Midstream E&P S&P Price volatility of the midstream sector is not indicative of the underlying cash flows which have grown steadily through the downturn, in our view. Source: Bloomberg, Company Filings as of 4/30/2017. Midstream = Tortoise Midstream MLP Index (TMLPMID) / E&P = Tortoise North American Oil & Gas Producers Index (TNEP) *Total return 6/30/14 5/30/17 5

18 Important disclosures Tortoise MLP Index, a float-adjusted, capitalization-weighted index of energy master limited partnerships (MLPs). To be eligible for inclusion in the Tortoise MLP Index, a company must be publicly traded, organized as a limited partnership or a limited liability company, and be classified as an energy MLP by the National Association of Publicly Traded Partnerships (NAPTP). The Tortoise North American Oil & Gas Producers Index SM is a float-adjusted, capitalization-weighted index of North American energy companies primarily engaged in the production of crude oil, condensate, natural gas or natural gas liquids (NGLs). The index includes exploration and production companies structured as corporations, limited liability companies and master limited partnerships but excludes United States royalty trusts. The Tortoise MLP Index and Tortoise North American Oil & Gas Producers Index SM (the Indices ) are the exclusive property of Tortoise Index Solutions, LLC, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the Indices. The Indices are not sponsored by S&P Dow Jones Indices or its affiliates or its third party licensors (collectively, S&P Dow Jones Indices ). S&P Dow Jones Indices will not be liable for any errors or omission in calculating the Indices. Calculated by S&P Dow Jones Indices and its related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed for use by Tortoise Index Solutions, LLC and its affiliates. S&P is a registered trademark of Standard & Poor s Financial Services LLC ( SPFS ), and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). 6