Pipe to Pipe: A look at the Transformation of the Midstream Sector Goldman, Sachs & Co. November 18, 2014 Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.
Market Cap ($mm) Massive Expansion and Transformation of MLP Landscape 126 $700,000 $600,000 $500,000 Midstream Exploration & Production Propane & Refined Fuel Distribution Marine Transportation Coal, Minerals, & Timber Other # of Companies 86 100 115 125 100 $400,000 54 64 67 67 74 75 # of Companies $300,000 $200,000 23 28 35 33 37 45 50 25 $100,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 Source: Dealogic 1 Reflective of merger, reverse merger, bankruptcy, and IPO activity since 2000. 1
Largest MLPs Have Grown Exponentially Market Capitalization ($ in billions) 5 Years Ago Today $ 73 $ 44 $ 18 $ 16 $ 23 $ 23 $ 20 $ 8 $ 7 $ 6 EPD KMP ETP PAA EEP EPD KMP ETP WPZ PAA Source: Bloomberg 2
# of Transactions Per Period Midstream M&A Activity Has Accelerated In Both Size and Number of Transactions 2005 2014YTD (US$ in billions) $67 $65 $49 $32 $3 $28 $50 $5 $18 $18 $6 $5 $12 $7 $4 $6 $4 $6 $4 $7 $13 $6 $8 $6 $2 $1 $1 $5 $6 $6 $7 $9 $18 $11 $9 $9 $4 $8 $8 2005 2006¹ 2007 2008 2009 2010 2011 2012 2013 2014 YTD² <$1bn 19 16 17 13 17 20 26 35 20 24 $1-3bn 4 2 4 1 1 2 5 9 3 5 $3-5bn 0 1 0 0 0 0 0 1 2 0 >$5bn 1 0 1 0 1 0 2 0 1 3 Source: Wall Street research, IHS Herold Note: Transaction size greater than $100mm. Excludes all drop-down and affiliate transactions. Multiples represent Enterprise Value / FY1 EBITDA multiple. ¹ Excludes acquisition of Kinder Morgan in management take-private transaction along with consortium of financial acquirers announced 19-Apr-2006. 2 Excludes consolidation of Kinder Morgan controlled entities announced 11-Aug-2014. 3
Midstream Sector Outperformance Is Widely LQA Yield Noted 311 % Alerian Has Outpaced the Broader Market 163 % 111 % 96 % 72 % 69 % 10 Years 5 Years 3 Years Alerian Total Return S&P 500 Total Return And Seen Its Yield Compress 7.4% 6.2% 6.1% 6.6% 5.8% 5.6% 2009 2010 2011 2012 2013 Current Alerian LQA Yield Source: Bloomberg 4
2-Year DPU Growth LQA Yield But Alerian Yield Compression Has Simply Followed Constituents Growth Profiles The Alerian Now Contains More High Growth and Ultra High Growth Constituents 8.7% 7.1% 6.4% 6.9% 6.0% 8.8% 8.2% 7.7% 6.7% 6.6% 6.5% 5.1% 5.2% 5.4% 3.8% 9.0% 6.1% 4.4% 2.1% # of Companies 26 19 5 30 17 3 22 21 7 27 16 7 27 14 9 22 15 11 2 2009 2010 2011 2012 2013 Current Who Are Growing at Record Rates 22.8% 11.5% 13.5% 12.8% 12.3% 15.3% 14.8% 6.7% 7.0% 6.6% 7.6% 7.4% 7.0% 1.8% 3.3% 3.2% 1.8% 2.5% 2.6% 2009 2010 2011 2012 2013 Current Low Growth (<5%) Medium Growth (5%-10%) High Growth (10%-20%) Ultra High Growth (>20%) Source: Company filings, Alerian MLP Index, IBES, Bloomberg Note: Based on Alerian constituents at year end. 5
Yield Has Not Meaningfully Compressed For Stable Growth Alerian Expected Total Return 12.0% 11.3% 12.0% 13.0% 12.7% 13.1% 4.6% 5.1% 6.0% 6.5% 6.9% 7.5% 7.4% 6.2% 6.1% 6.6% 5.8% 5.6% 2009 2010 2011 2012 2013 Current 5% to 6% Growth MLPs Expected Total Return 1 # of Companies 11 10 18 8 8 7 12.1% 12.0% 12.0% 11.9% 11.9% 12.1% 5.5% 5.2% 5.4% 5.6% 5.1% 5.2% 6.6% 6.8% 6.7% 6.3% 6.8% 6.9% 2009 2010 2011 2012 2013 Current LQA Yield 2-Year DPU Growth Source: Alerian MLP Index, IBES, Bloomberg Note: Alerian constituents at year end. ¹ Includes Alerian constituents with 2-year DPU CAGR within 50bps of 5% and 6%. 6
LQA Yield LQA Yield Investors Are Increasingly Focused on Growth MLP Universe 2 Years Ago MLP Universe Today Focused On Growth¹ 1.0 % 1.0 % VLP PSXP 2.0 % 2.0 % BWP OILT DM TRGP WGP PAGP EQM 4.0 % 8.0 % WES OILT TLLP SXL EPD OKS PAA MMP ACMP EPB RRMS SEPKMP WPZ NGL GEL ETPHEP DPM TCP APLBKEP EEP NGLS TLP MWE BWP ENLK BPL NSRGP AMID MMLP 4.0 % 8.0 % MPLX MMP SXL EPD WNRL WES RRMS GEL TLLP SEP SMLP ACMP QEPM NGLS PAA ENLK MWE DKL ENBL BPL DPM OKS MEP KMP TCP HEP WPT NGL EPB ETP BKEP ARCX WPZ AMID RGP NS TLP SXEFISH APL EEP MMLP ENLC TEP CNNX 0.0 % 7.5 % 15.0 % 22.5 % 30.0 % 2012-2014 DPU CAGR 0.0 % 7.5 % 15.0 % 22.5 % 30.0 % 2014-2016 DPU CAGR Crude & Refined Products Gathering and Processing Gas Pipeline Diversified Public GP Source: Company filings, IBES, Wall Street research, Bloomberg 1 Triangles denote recent IPOs. 7
Blocks Overnights / 1 Day Marketed IPOs Institutional Capital Has Become a Leading Influence on the MLP Market MLP Markets Becoming Institutional Driven by Uptick in MLP-Dedicated Funds Allocations in MLP Offerings Have Evolved $19,044 $16,941 5 Years Ago Today $7,805 $6,754 $679 $1,593 $2,197 $2,606 $10,528 $2,669 $4,599 $9,626 $4,741 $10,291 $3,586 Retail 55% Institutional 45% Retail 22% Institutional 78% $986 $615 $188 $188 $372 $3,878 $3,606 $3,261 $4,677 $3,064 Institutional 5% 2008 2009 2010 2011 2012 2013 2014 CEF ETFs/ETNs OEFs And Increasing Sector Participation from Blue Chip Institutions and Hedge Funds Retail 95% Retail 50% Institutional 50% Retail 5% No Block Market Institutional 95% Source: U.S. Capital Advisors, LLC, Factset, GS Internal Data, Dealogic 8
Questions Why do you think institutional interest in the MLP market has grown? How do institutional investors approach MLP valuation? What do you generally hear senior executives say are their biggest fears? What keeps them up at night? How do you think the recent significant downward moves in commodity prices will affect the energy industry in general and midstream in particular? Do you foresee the rapid pace of midstream consolidation continuing, and what M&A themes do you think will continue or emerge? How do you expect rising interest rates to impact MLPs? Will there be winners and losers? What lies ahead for general partners of drop down MLPs? Will diversified energy companies and utilities continue to retain the general partners of their affiliated MLPs? Are these general partners and IDR cash flow streams being properly valued when held within larger corporations? 9