APRIL QUICK HIT

Tumultuous Times and Self-Inflicted Wounds

It’s amazing how quickly the world can change. I had great meetings in Texas last week as I attended U.S. Capital Advisors’ Midstream Corporate Access Day on “Liberation Day” (April 2nd). Management teams were unabashedly optimistic about the outlook for their companies, oil prices were still hovering around $70 per barrel, the energy sector was the best performing S&P 500 sector, and fears of a recession were low. Today, oil prices are trying to stay above $60 per barrel, the midstream energy sector (AMNA) has lost 13% of its market value (versus 11% for the S&P 500) and recession fears are high.

A lot has changed in a few days, but a lot hasn't. 

What HAS changed?

1. OPEC caught markets off guard. The group announced that it would accelerate the unwinding of its voluntary production cuts by increasing production by 411,000 barrels per day in May instead of the scheduled 135,000 barrels per day. The action appears aimed at punishing members like Kazakhstan and Iraq for exceeding their quotas. It may also reflect an effort to preemptively offset potential loss of supply from Iran, Venezuela and Russia as U.S. sanctions tighten—or it could just be ceding to Trump’s requests to produce more oil.

2. Trump’s “Liberation Day” tariff announcement on April 2nd was much worse than expected. A 10% baseline increase on all imports had been widely anticipated, but the introduction of “reciprocal” tariffs seemed overly harsh. Hence our title, “Tumultuous Times and Self-Inflicted Wounds.”

What HAS NOT changed?

1. Secular growth in natural gas demand remains intact. Midstream energy companies we met with at last week’s conference confirmed strong demand for natural gas from data centers and LNG export facilities. Indeed, natural gas prices are still hovering above $4.00 per MMBtu for calendar 2026 even as oil prices have slid.

2. Significant production cuts remain unlikely. The Permian Basin is the key driver for growth in oil and associated natural gas production. It is dominated by the Majors and large public E&P companies. Sustained oil prices below $60 per barrel would be problematic but we don't envision it. Natural gas production from the Haynesville will continue to support growth in LNG exports.

3. Dividends remain secure and growing. Energy companies across the value chain have deleveraged with balance sheets in solid order. Unlike a few years ago, midstream companies are living within their cash flow—dividend coverage ratios are ~1.8x on average (Wells Fargo research) versus ~1.0x and leveraged balance sheets. The median yield is 5.5% with projected annual growth rates of 5% over the five-year period of 2025-2030 according to Wells Fargo research. (4/4/25).

Our bottom line is staying the course with midstream companies that pay attractive and growing dividends, have solid balance sheets, have demonstrated financial discipline, and have proven resilient businesses through various economic cycles. That said, expect continued market volatility given uncertainty around the Trump tariffs and the geopolitical consequences.

IMPORTANT DISCLOSURES

Siegel Asset Management Partners is a registered investment adviser located in Plainview, New York. The views expressed are those of Siegel Asset Management Partners and are not intended as investment advice or recommendation. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. Third-party economic, market or security estimates or forecasts discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates or forecasts. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, Siegel Asset Management Partners' returns reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.