PXD: MS sees more upside

[dan_s]

Plains Analyst Day: Debunking and Debottlenecking. June 8, 2018

"Plains provided a constructive outlook on its ability to achieve its Permian volume forecast. With very constructive volumes in April and some growth potential beyond a +14%-15% 2019, we see a derisked setup. Reiterate Overweight."

Tom Abrams – Morgan Stanley
June 8, 2018 3:00 AM GMT

DVN's announced sale of EnLink focused investor attention and raised questions for other E&Ps with MLP stakes. Plains' analyst day was also closely watched with Permian volume growth capture well defended. Finally, we visited SEMG's HFOTCO facility for further insight into IMO 2020 impacts.

Midstream underperformed the market though traded well on an absolute basis (AMZ +1.9% vs. SPX +2.4%). Midstream modestly outperformed broad energy (XOI +1.2%) and sharply outperformed utilities (UTY -4.4%). Underlying performance was mixed, though MLPs impacted by structural or transaction related uncertainty outperformed (TCP, AM, EQM, ANDX, DM). Another week, another structural announcement.

DVN announced the sale of its ENLC and ENLK interests to Global Infrastructure Partners (GIP) for $3.125 Bil. The sale was increasingly anticipated by the market though with uncertainty around timing and the potential buyer (PE, strategic). The announcement raised questions as to whether other E&Ps may look to monetize or spin their MLP stakes (APC, OAS, AR). Our sense is a near-term separation of the midstream business could be possible for AR given the ongoing structural review, but we don't see it as likely.

APC is still reliant on WES given the infrastructure build out required to support APC's Permian growth. Meanwhile in OAS' case, OMP hasn't yet reached the scale where we think a potential separation could be impactful enough to pursue.

Plains' analyst day provides insight into Permian constraints. In addition to other takeaways, Plains provided Permian production growth forecasts in constrained (well completion and takeaway) and unconstrained scenarios. Both scenarios show substantial growth, and even if production were to plateau for a few quarters this year, midstream assets should remain full with latent volume potential for new projects. Plains expects only 150 kbpd of takeaway capacity via trucking/rail (for the entire Permian Basin) and doesn't see gas takeaway as a constraint to their production targets.
-----------------------------------------
MY TAKE: As more companies get in front of analysts and explain how they are going to get their Permian Basin production to market, this FEAR will subside.

[jb2257]

Another Permian play CXO got a downgrade today which didn't help.

[dan_s]

Take a hard look at slide 9 in my podcast, which you can view on the EPG website home page. The pipeline capacity issue will have only minor impact on CXO (per Credit Suisse energy sector team).