East Daley: Market Confused and Ignoring Facts in Relation to Recent FERC Tax Policies on Natural Gas Pipelines

The bloodletting resumed in the midstream space on Monday as the
market appears to still be wrestling with the downside from the new
proposed and ruled tax policies from the FERC. However, East
Daley analysis indicates that the market misunderstands how these new
policies will impact future midstream company performance.

CENTENNIAL, Colo.–(BUSINESS WIRE)–#bakken—East
Daley Capital Advisors, Inc., an energy assets research firm
redefining risk assessment for midstream energy companies, is cautioning
investors in midstream oil and gas companies to look closely at the
details of the new FERC rulings and how those rulings apply to specific
assets in midstream companies to properly evaluate risk. East Daley
analysis indicates that the market is having difficulty quantifying how
these recent changes will impact company performance.

“One example of the facts not matching market sentiment is Energy
Transfer Partners, which has seen unit prices drop 8.54% over the past
three trading days,” said Justin Carlson, VP and Managing Director,
Research at East Daley Capital. “Energy Transfer Partners has minimal
exposure to rates reductions due to the decrease and elimination of the
income tax allowance. East Daley analysis indicates that only 4.2% of
total company EBITDA is exposed to max tariff rates with only Panhandle
and Florida Gas Transmission having significant exposure. Moderate
decreases in rates on both Panhandle and Florida Gas Transmission would
have nonmaterial impacts on total company EBITDA for Energy Transfer
Partners, yet their unit prices have suffered.”

Last 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.

“Also interesting is that Kinder Morgan has fared better compared to the
rest of the midstream space, only losing 2.56% over the last three
trading days,” said Carlson. “The outperformance is interesting compared
to others such as Energy Transfer, given our adjusted return on equity
calculations that show several of their large pipelines may be
overearning. Kinder Morgan pipelines have a significant portion of their
EBITDA protected via negotiated contracts, however, there would still be
earnings headwinds if max tariff rates were cut on large earning
pipelines like El Paso and Tennessee Gas.”

Contact
East Daley for a copy of its official response to these
changes, titled: FERC Rules On Tax Changes.

Dirty
Little Secrets is East Daley’s most comprehensive
report on the U.S. oil and gas midstream sector. This report is used by
investors, institutional banks, fund managers, private equity, midstream
companies and E&Ps to understand how changing energy market dynamics
will impact the midstream sector in 2018 and beyond. This report is made
possible by East Daley’s dedicated team of midstream analysts,
leveraging the largest database of U.S. energy infrastructure that
delivers unprecedented clarity into the vast network of midstream assets.

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.

East Daley Capital 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.

Contacts

East Daley Capital
John Lange, 303-499-5940
Vice-President,
Managing Director of Sales and Marketing
jlange@eastdaley.com