Midstream energy companies are often thought of as safe investments. These are companies that provide processing, storage and transportation of crude oil and natural gas. Recently, the decline in valuations of the midstream and master limited partnership (MLP) energy sectors happened faster than the US energy crisis in 2015 and the financial crisis of 2008. The COVID-19 global pandemic has created a decline in prices and a glut of oil. According to the New York Times, the glut is threatening severe economic pain in what had been a thriving domestic industry.

During this current coronavirus market, many midstream energy companies, such as Enbridge (ENB), Energy Transfer (ET), Kinder Morgan (KMI), Enterprise Products Partners (EPD) have lost over 40% or more.  These companies may actually be extremely risky and might not be the bargain some broker/dealers suggest, even if they rebound.  Many of these companies could file for bankruptcy and that would be of little help to the shareholders.  Also, many of the midstream energy companies are large and very levered, both operationally and financially.

With the large drop in crude prices, which could take a long time to recover, could also mean that a large number of the shale companies could also go bankrupt. These companies are customers of the midstreams. Due to the midstream energy companies leverage, this could have a disproportionate effect on midstream equity values.

Standard & Poors believes that over 40 producers in the midstream energy sector could soon be rated in the CCC category and that it sees potential for bankruptcies or defaults in the near future.

Some midstream energy MLPs have started to cut their distributions. Plains All American Pipeline LP (PAA) cut their May distribution from their February distribution of $0.36 to $0.18. DCP Midstream LP (DCP) cut its May distribution to $0.39 from its February distribution of $0.78.

If your broker/dealer or financial advisor recommended any of the midstream energy MLPs, and you find your conservative/retirement portfolio devastated with losses that you may never be able to recover, contact Soreide Law Group and speak to an experienced securities lawyer at no cost regarding the possible recovery of your investment losses through a FINRA arbitration at:  888-760-6552.

Soreide Law Group represents clients nationally before FINRA and we operate on a contingency fee basis—no fee to you if no recovery.