1 q16 liquids midstream preview

1. April 21, 2016
Americas: Pipelines and MLPs
Equity Research
Favor fundamentals over yield: 1Q16 liquids midstream preview
1Q16 earnings preview for liquids focused midstream coverage
Since WTI bottomed on Feb 11, the AMZ has rallied 43% with liquids focused
MLPs under coverage outperforming by 1,000bps (up 53%). Below we
highlight key themes for 1Q16 earnings. We also revise ests for our coverage.
Fading the high distribution yield investment. Since WTI bottomed, higher
distribution yielding MLPs (measured by 10%+ on Feb 11) are up 72%
compared to 27% for the rest of the group. However, with average yields
closer to their historical run-rate (7.5% vs. 12% peak) we expect higher-quality
companies to outperform as fundamentals come into focus.
Identifying late-cycle tail risk. While the worst is likely behind the group
from a sentiment standpoint, midstream still needs to absorb roughly 500kbpd
of lower 48 crude production declines through 1Q17. We believe this creates
late-cycle tail risk for companies with weaker financials and direct volume
exposure. Buy HEP, Buy SXL, Sell PAA.
Focus more on commentary over 1Q results. We believe management’s
forward outlook, including post-1Q real-time trends, will be more of a catalyst
than actual 1Q results with key commentary from PAA, SEMG and SXL. We
also see 1Q risk at WNRL (Buy) on lower gathering volumes related to 4Q one-
time event carry over but focus on long-term volume resiliency.
Corporate restructuring. Key stocks include PAA/PAGP and SEMG/RRMS.
Addressing capital needs. With valuations close to normalized levels,
financing strategies may shift back to equity issuance (such as ENB’s C$2bn
overnight or EPD’s $1.6b ATM YTD) over non-core asset divestures, JVs or
convertible preferred offerings. Key stocks include PAA, SXL, NS.
Commodity sensitivity. While we remain focused on volume, the
commodity rally may improve the outlook for transmix and butane-blending
businesses (NS, BPL, MMP, SXL). For better NGL price realizations, we also
highlight SEMG and PAA.
LNG, HEP, SXL top picks
We prefer HEP, SXL, WNRL for their largely fee-based, contracted cash flows
and SEMG on valuation. We also like LNG/CQH for its long-term cash flow
visibility. We maintain our Sell ratings on PAA for its challenged
fundamentals including volume exposure and DM on valuation.
RELATED RESEARCH
Americas: Pipelines and MLPs: Diversified/gas 1Q16
preview: Not quite out of the woods yet (April 19, 2016)
Americas: Pipelines and MLPs: Crude supply/ demand
refresh; Give and take but setup improving (April 14, 2016)
Midstream Energy: Natural Gas Liquids (NGLs): Propane
exports off to a rapid start, but should slow as inventories
normalize (April 11, 2016)
Americas: Pipelines & MLPs: Volume over price: Cut NGL to
Sell; CQP, SMLP, WGP to Neutral (March 11, 2016)
Americas: Pipelines & MLPs: 2016 Outlook: Credit strikes
back; MLP volatility to continue (December 17, 2015)
Americas: Pipelines & MLPs: Screening for potential
distribution cuts across MLPs, version 3.0 (December 10,
2015)
Americas: Pipelines & MLPs: Refreshing Big 4 Basin supply
demand; excess capacity through ’19 (December 8, 2015)
Americas: Pipelines and MLPs: Announced projects imply
overbuild in Big 4 crude basins (October 27, 2015)
Steve Sherowski
(212) 902-5975 steve.sherowski@gs.com Goldman, Sachs & Co.
Goldman Sachs does and seeks to do business with
companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making
their investment decision. For Reg AC certification and other
important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-
US affiliates are not registered/qualified as research analysts
with FINRA in the U.S.
Theodore Durbin
(212) 902-2312 ted.durbin@gs.com Goldman, Sachs & Co.
Jerren Holder, CFA
(917) 343-5021 jerren.holder@gs.com Goldman, Sachs & Co.
Michaela LeBlanc
(212) 902-7269 michaela.leblanc@gs.com Goldman, Sachs & Co.
The Goldman Sachs Group, Inc. Global Investment Research

2. April 21, 2016 Americas: Pipelines and MLPs
Goldman Sachs Global Investment Research 2
Estimates: We see 1% downside to median 1Q16 consensus
Key drivers for estimate revisions:
While we do not change any price targets, we are revising our estimates given lower
volumes. Material changes include:
PAA: We lower estimates on tighter S&L margins and Transportation segment volumes.
Our $554m 1Q16 EBITDA is at the low end of management’s $540-600m guidance range.
WNRL: We lower our Delaware basin gathering volumes on weather and one-time carry
over from 4Q15. We also delay our NTI dropdown assumption to 2H16 from 2Q16 and take
a slightly more conservative view on its 2017 dropdown schedule due to capital market
uncertainty.
SEMG: We raise our estimates as we mark-to-market slightly higher NGL margin
realizations at SemGas. We also model less severe volume declines at White Cliffs pipeline
and SemGas.
NS: Our estimate revision is driven by our outlook for greater Eagle Ford production
declines, negatively impacting crude gathering and Corpus Christi terminal throughput.
PSXP: We lower our out-year EBITDA estimate based on our view that slightly smaller size
dropdowns will be adequate to reach PSXP’s 30% distribution growth target.
Exhibit 1: We make minor changes to our 2016-2018 EBITDA estimates
Updated EBITDA projections for liquids/ LNG midstream companies
Source: Goldman Sachs Global Investment Research.
Old EBITDA New EBITDA % Change
2016 Q1 2016 2017 2018 2016 Q1 2016 2017 2018 2016 Q1 2016 2017 2018
C-Corps
Cheniere Energy Partners Holdings CQH $5 $18 $188 $461 $5 $18 $188 $461 0% 0% 0% 0%
Kirby Corp. KEX $120 $509 $540 $571 $118 $504 $535 $563 -2% -1% -1% -1%
Cheniere Energy Inc. LNG -$17 $388 $1,901 $2,040 -$17 $388 $1,901 $2,040 0% 0% 0% 0%
Plains GP Holdings PAGP $537 $1,982 $2,237 $2,488 $514 $1,959 $2,237 $2,488 -4% -1% 0% 0%
SemGroup Corp. SEMG $63 $243 $256 $286 $70 $265 $282 $294 10% 9% 10% 3%
Liquids MLPs
Buckeye Partners BPL $236 $969 $1,072 $1,143 $238 $957 $1,059 $1,134 1% -1% -1% -1%
Cheniere Energy Partners CQP $19 $423 $1,814 $2,178 $19 $423 $1,814 $2,178 0% 0% 0% 0%
Delek Logistics Partners DKL $21 $102 $116 $122 $22 $103 $115 $122 2% 1% 0% 0%
Dominion Midstream Partners DM $27 $110 $160 $237 $27 $110 $161 $238 0% 0% 1% 0%
Holly Energy Partners HEP $66 $271 $297 $307 $66 $271 $297 $307 0% 0% 0% 0%
Magellan Midstream Partners MMP $271 $1,154 $1,322 $1,362 $271 $1,154 $1,308 $1,342 0% 0% -1% -1%
NuStar Energy LP NS $151 $617 $647 $696 $142 $586 $623 $678 -6% -5% -4% -3%
NuStar GP Holdings NSH $18 $72 $74 $82 $17 $68 $72 $80 -7% -5% -4% -2%
Plains All American Pipeline LP PAA $577 $2,175 $2,435 $2,684 $554 $2,152 $2,435 $2,684 -4% -1% 0% 0%
Phillips 66 Partners LP PSXP $81 $448 $777 $1,139 $81 $448 $724 $1,113 0% 0% -7% -2%
Rose Rock Midstream LP RRMS $46 $182 $199 $207 $45 $178 $213 $217 -2% -2% 7% 5%
Sunoco Logistics Partners SXL $298 $1,279 $1,492 $1,931 $298 $1,279 $1,516 $1,959 0% 0% 2% 1%
Western Refining Logistics LP WNRL $34 $160 $209 $238 $33 $143 $201 $238 -2% -11% -4% 0%
Average Change (%) -1% -1% 0% 0%

3. April 21, 2016 Americas: Pipelines and MLPs
Goldman Sachs Global Investment Research 3
Exhibit 2: We are, on average, 1% below median consensus EBITDA for 2016
GS vs. consensus EBITDA forecasts
Source: Goldman Sachs Global Investment Research.
Valuation: We see 7% average downside to our 12-month targets
Top stock ideas
 LNG/CQH – Buy. Our 12-month SOTP-based price target of $46 for LNG implies
22% total return potential, while our $22, 12-month DDM-based price target for
CQH implies 14% total return potential. We continue to like Cheniere’s long-term,
highly contracted cash flows with investment grade counterparties. Upcoming
catalysts include: 1) potential FID of Chilean project Central El Campesino; 2)
commercial operations start-up at Sabine Pass Train 1; 3) appointment of a
permanent CEO; and 4) potential rollover of 2020 debt maturities. Key risks for
LNG/CQH include marketing profitability, utilization rates, project delays.
 HEP – Buy. Our 12-month $35 yield-based price target implies 7% total return
potential. We believe HEP’s highly fee-based revenue stream (backed by long-term
minimum volume commitments) offers investors a compelling value proposition
in an uncertain commodity price environment. We expect HEP will maintain its 8%
distribution growth target by 2018 supported by a combination of drop downs
from its supportive sponsor – HFC (covered by Neil Mehta) and strategic third-
party asset acquisitions. Key risks include future dropdown timing and price paid
to parent, size of dropdown eligible project backlog at parent.
 SEMG – Buy. We see 12% total return to our 12-month, 85% fundamental
SOTP/15% M&A price target of $30. It remains our view that SEMG valuation
provides an attractive entry point, and we believe that the Maurepas project –
expected to come into service in late 2016 – should offset cash flow declines from
lower White Cliffs volumes and SemGas. Key risks include dropdown timing and
multiple, regional crude oil and natural gas production trends, and project backlog
growth.
Goldman Sachs Liquids/ LNG Coverage
GS Cons % GS Cons % GS Cons % GS Cons %
C-Corps
Cheniere Energy Partners Holdings CQH $5 $5 0% $18 $19 -1% $188 $250 -25% $461 $434 6%
Kirby Corp. KEX $118 $120 -2% $504 $496 2% $535 $517 4% $563 $548 3%
Cheniere Energy Inc. LNG -$17 $43 -140% $388 $362 7% $1,901 $1,386 37% $2,040 $2,128 -4%
Plains GP Holdings PAGP $514 $544 -5% $1,959 $2,152 -9% $2,237 $2,414 -7% $2,488 $2,607 -5%
SemGroup Corp. SEMG $70 $71 -1% $265 $269 -1% $282 $313 -10% $294 $326 -10%
Liquids MLPs
Buckeye Partners BPL $238 $244 -3% $957 $984 -3% $1,059 $1,039 2% $1,134 $1,079 5%
Cheniere Energy Partners CQP $19 $67 -71% $423 $589 -28% $1,814 $1,565 16% $2,178 $2,223 -2%
Delek Logistics Partners DKL $22 $25 -14% $103 $108 -5% $115 $120 -4% $122 $126 -3%
Dominion Midstream Partners DM $27 $26 2% $110 $108 1% $161 $185 -13% $238 $458 -48%
Holly Energy Partners HEP $66 $67 -1% $271 $274 -1% $297 $299 -1% $307 $330 -7%
Magellan Midstream Partners MMP $271 $284 -5% $1,154 $1,180 -2% $1,308 $1,279 2% $1,342 $1,360 -1%
NuStar Energy LP NS $142 $144 -2% $586 $591 -1% $623 $628 -1% $678 $668 2%
NuStar GP Holdings NSH $17 $16 3% $68 $67 1% $72 $70 2% $80 $73 10%
Plains All American Pipeline LP PAA $554 $560 -1% $2,152 $2,208 -3% $2,435 $2,481 -2% $2,684 $2,715 -1%
Phillips 66 Partners LP PSXP $81 $83 -2% $448 $420 7% $724 $686 6% $1,113 $1,043 7%
Rose Rock Midstream LP RRMS $45 $43 5% $178 $173 3% $213 $167 28% $217 $181 20%
Sunoco Logistics Partners SXL $298 $300 -1% $1,279 $1,329 -4% $1,516 $1,695 -11% $1,959 $1,915 2%
Western Refining Logistics LP WNRL $33 $33 0% $143 $147 -3% $201 $182 11% $238 $222 7%
Median Change (%) -1% -1% 1% 0%
1Q16 2016 2017 2018

4. April 21, 2016 Americas: Pipelines and MLPs
Goldman Sachs Global Investment Research 4
 SXL – Buy. Our 12- month $29 yield-based price target implies 5% total return
upside potential. We believe SXL offers investors a unique combination of stable,
long-term fee-based cash flows in its base crude business, supplemented by
contributions from a highly visible backlog of growth projects. Notably, we believe
SXL can address much of its equity needs through a healthy at-the-market
program. We see additional upside high return projects supported by MVCs and
increased volumes on its NGL pipelines driven by strong exports in the first
quarter. Upcoming catalysts include earlier-than-expected regulatory permits for
DAPL and Mariner East 2. Key risks are project execution, crude spread
compression and asset utilization rates.
 WNRL – Buy. Our $25 yield-based target price implies a 6% total return potential
for WNRL. We like WNRL’s highly contracted cash flows, partially backstopped by
MVCs, with mostly Investment Grade counterparties. In our view, we should
continue to see solid volumes at its wholesale segment coupled with a ramp up in
Delaware basin volumes in 2016. Key risks include single asset risk, dropdown
timing and price, lower gathering volumes.
 DM – Sell. Our 12-month $27 yield based price target implies 14% downside. We
remain sellers of DM as we believe its strong dropdown driven growth trajectory is
premised on the ability to maintain an unsustainably low cost of capital (~2% for
the foreseeable future). We expect DM’s cost of capital to rise as it nears a more
normal growth rate, leading to a shorter high growth period vs. market
expectations. Key risks include sustained access to low cost equity capital, higher
accretion vs. estimates and stronger organic project driven growth.
 PAA – Sell. We see 30% downside to our 12-month, yield-based price target of
$17. Given its close-to-the-wellhead asset base, we believe PAA faces challenges in
the current low commodity price environment. Although we view positively PAA’s
footprint in the Permian, we believe the company faces competition and potential
margin erosion from new market entrants. Moreover, we believe PAA is at risk for
a distribution cut; we forecast FY16 coverage of 0.66x and leverage 4.9x. Key risks
include midstream demand growth, widening spread differentials, and accretive
third-party acquisitions.