4Q22 Caps a Strong Year for Midstream/MLP Buybacks

With excess cash resulting from stable cash flows and reduced capital spending, energy infrastructure companies have been returning capital to shareholders through growing dividends and equity repurchases. While dividend growth is broad based, buyback activity tends to be more mixed, with some companies more active than others and some not having repurchase authorizations at all. Today’s note reviews buyback activity for energy infrastructure companies during 4Q22 and for full year 2022. For more updates on the midstream/MLP space, please join our upcoming webcast “Midstream/MLPs: Can the Strong Fundamentals Persist?” on Wednesday, March 22, at 2 p.m. ET (register here )

For the third straight quarter, aggregate buybacks for the energy infrastructure space totaled approximately $1.4 billion. Ten constituents of the broad Alerian Midstream Energy Index (AMNA) collectively bought back $1.42 billion in shares in 4Q22 – just a touch above the aggregate quarterly spend for 2Q22 and 3Q22. Buyback activity was concentrated around a few names, with three companies accounting for over 70% of total repurchases. Cheniere Energy (LNG) repurchased the most equity during the quarter, spending over $700 million. The other leaders in the quarter were MPLX (MPLX) with $176 million in buybacks and Enterprise Products Partners (EPD) with $120 million. Five companies did not repurchase shares during the quarter in keeping with the opportunistic nature of buybacks.

For full year 2022, midstream companies collectively repurchased over $4.5 billion in equity. For context, the total North American Energy infrastructure market cap was $544 billion at the end of the year. Cheniere (LNG) also led the way for total 2022 buybacks, having repurchased $1.37 billion in equity in 2022, followed by MPLX with $491 million in repurchases for the year.

The table below shows the energy infrastructure companies with buyback authorizations in place, how much each has spent on repurchases, and each company’s weighting in AMNA, the Alerian MLP Infrastructure Index (AMZI), the Alerian Midstream Energy Select Index (AMEI), and the Alerian Midstream Energy Dividend Index (AEDW). Indicative of the healthy free cash flow generation seen in the space (read more), more than 70% of the indexes by weighting have buyback authorizations in place.

A few companies have increased their buyback authorizations in recent months or expect to add to their authorization. In January, Kinder Morgan (KMI) announced it authorized an additional $1 billion equity repurchase program, bringing the total amount authorized since 2017 to $3 billion. KMI repurchased $368 million in equity throughout 2022, and there is approximately $2.1 billion left in remaining capacity. In December 2022, the board of EnLink Midstream (ENLC) reset the repurchase authorization for 2023 to $200 million. Targa Resources (TRGP), which currently has $144 million remaining under its $500 million authorization, announced in its 4Q22 earnings release that it plans to recommend to its board of directors a new $1 billion share repurchase program.

Midstream buyback activity for 4Q22 and the year in general was strong, though admittedly Cheniere (LNG) accounted for a significant portion of the overall repurchase spend in both periods. At the company level, buybacks remain an important tool for returning cash to investors, complementing solid dividend growth in the space (read more).

AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB). AMNA is the underlying index for the ETRACS Alerian Midstream Energy Index ETN (AMNA). AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR) and the ALPS Alerian Energy Infrastructure Portfolio (ALEFX). AEDW is the underlying index for the Alerian Midstream Energy Dividend UCITS ETF (MMLP) and the ETRACS Alerian Midstream Energy High Dividend Index ETN (AMND).

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