Earlier this month, the Mizuho Energy Summit in Napa, California brought together 14 innovative energy companies to speak with dozens of leading institutional investors. Mizuho facilitated discussions on the opportunities and challenges within the energy complex, focusing on infrastructure and the Master Limited Partnership (MLP) companies that dominate the sector.
Mizuho senior energy analyst Brian Zarahn summed up the main takeaways of the event as:
1) Investor sentiment is slightly improving from fairly low levels spurred by the bottoming of the energy infrastructure sector (transportation, storage and processing of oil and natural gas) reached in the weeks before the conference. Though it may take a few earnings seasons, the sector should recover year to date losses as volume growth, a supportive oil price and projects entering service more than offset headwinds.
2) Corporate structure issues remain top of mind. Corporate issues investors remain focused on future general partner incentive distribution rights (IDR) eliminations and companies converting to C corporations, which are taxed differently. However, Zarahn reiterated his belief that these changes will likely take place more slowly than the market would prefer. High-growth MLPs, for example, recognize the market wants IDR eliminations because they entitle some partners to a higher proportion of the quarterly distribution, but no changes are expected near term.
3) A tax won’t be that taxing. Management teams reiterated they anticipate limited impact from the Federal Energy Regulatory Commission (FERC) income tax policy change for cost-of-service pipelines (those subject to government regulated pricing to ensure just and reasonable rates). Companies stated it is too early to know what FERC will do but they will be proactive when FERC conducts its five-year review of the liquids pipeline index in 2020.
This second annual Mizuho Energy Summit featured one-on-one and small group meetings, as well as a panel presentation and Mizuho hosted dinners. For more information about Mizuho events that bring together institutional investors and corporations, email Mizuho Corporate Access at USEquity.CorporateAccess@us.mizuho-sc.com.