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Oil and Gas Stock Roundup: Deal News Drives Big Gains This Week (PAGP, KMI, WMB)

By Matthew DiLallo – Jul 16, 2016 at 9:20AM

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Energy infrastructure companies Kinder Morgan, Williams Companies, and Plains GP Holdings had a busy week.

Image source: Getty Images. 

What: The energy infrastructure space was abuzz with deal news this week, which fueled double-digit rallies for those involved. According to data from S&P Global Market Intelligence, the biggest movers this week were Plains GP Holdings (PAGP -1.82%), Kinder Morgan (KMI -0.33%), and Williams Companies (WMB -0.31%).

So what: Natural gas pipeline leader Kinder Morgan was active this week, announcing the sale of its stake in two pipelines. These transactions not only brought in much-needed cash to repay debt but removed future capex funding shortfalls. Credit analysts loved the moves, with Moody's reaffirming its credit rating while Fitch called it a "positive step."  

Meanwhile, Plains GP sealed a deal with its MLP Plains All American Pipeline Partners (PAA -1.26%) to simplify their ownership and governance structure. Under the terms of the deal, Plains GP will receive 245.5 million units from Plains All American, which will also assume $593 million of its parent's debt, in exchange for eliminating incentive distribution and other rights. In addition, both companies trimmed investor payouts with Plains All American cutting its distribution by 21% while Plains GP cut its dividend by 11%. Analysts liked the move, with Piper Jaffray saying that it improves Plains All American's coverage metrics while noting that the distribution reduction was at the low end of its expectations for a 20% to 50% reduction. Meanwhile, Baird upgraded both companies from underperform to neutral saying that the new structure was "positive." 

Finally, Williams Companies moved higher on a report that it received multiple bids for its Canadian unit. Because of the strong interest, the company is more likely to obtain a sale price at the high end of the $1 billion to $2 billion range that analysts are projecting. Meanwhile, analysts at Goldman Sachs and Morgan Stanley resumed coverage of the company following the collapse of its merger with Energy Transfer Equity (ET -0.25%), rating it a buy and neutral, respectively. That said, while analysts see opportunity, they also see uncertainty, including Williams Companies' plans for its own MLP Williams Partners (NYSE: WPZ). The companies need to do something because Williams Partners' distribution stability is in question, much like it was for Plains All American Pipeline before its deal with Plains GP. That deal might even be the blueprint that Williams follows.

Now what: The energy market downturn is forcing pipeline and processing companies to reevaluate their plans and portfolios. Several are enacting new go-forward strategies, which includes selling assets and resetting the level of investor payouts. These moves should ensure their long-term stability, which would put an end to a lot of the volatility they've put their investors through over the past year.

Matt DiLallo owns shares of Kinder Morgan. Matt DiLallo has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Moody's. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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