VettaFi Head of Energy Research Stacey Morris speaks to Thomas Warner from Proactive about how the midstream sector of the energy industry has been weathering recently volatility in the world's energy markets, as well as looking ahead to the next twelve months.
She says that midstream companies outstripped consensus estimates during the third quarter, with several enhancing their fiscal 2023 guidance, showcasing a strong financial foothold. Despite the oil market's volatility, with notable price fluctuations, the midstream sector maintained stability, underscoring its resilience. In particular, October saw midstream entities withstand a significant drop in oil prices, a testament to the sector's defensiveness and the attractive yield of around 7% offered by midstream indexes.
Morris highlights that the midstream's fee-based business model ensures steady cash flows, contributing to its generous dividend distributions.
She also points out the historical trend of Master Limited Partnerships (MLPs) in distributing a substantial portion of cash flows, due to their tax advantages in the U.S., which bolsters the income-centric nature of the sector. Looking forward, Morris remains optimistic about the midstream's trajectory, anticipating continued moderate U.S. production growth, which favours commodity prices and, consequently, the sector.
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