Energy Infrastructure

The Midstream Industry’s Free Cash Flow Potential

Chart

Nov 06, 2020

The midstream industry is poised for meaningful, positive free cash flow

We believe consistent free cash flow generation for the midstream industry is on the horizon—to the potential benefit of equity investors. About a decade ago, the U.S. midstream industry started the biggest and most furious buildout in its history. Today, the buildout of North America’s oil & gas infrastructure is now largely complete for the time being, save a few projects in process. As a result, midstream capital expenditures are set to decline rapidly.

As the capex cycle slows, there should be increasing free cash flow available for companies to put to use, as evident in the chart above. Wells Fargo analysts estimate that the industry’s cash flow yield will increase through 2025 from an estimated roughly 7% in 2020, ranging anywhere from 10% to 14% depending on the year. These levels dwarf, in our view, expected free cash flow yields for the S&P 500 of 3%-5% through 2022, and they give midstream companies ample room to take actions to return value to equity holders. We are already beginning to see this take shape, with companies using their excess cash to undertake new share buyback programs and further focus on deleveraging.

Subscribe for updates

Disclosure Information

This material is not, and is not intended as investment advice, an indication of trading intent or holdings or the prediction of investment performance. All information is current as of the date of this material. Views and information expressed herein are subject to change at any time. Brookfield Public Securities Group LLC disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources however, Brookfield Public Securities Group LLC does not warrant its completeness or accuracy. This presentation is not intended to, and does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any security, product, investment advice or service (nor shall any security, product, investment advice or service be offered or sold) in any jurisdiction in which Brookfield Public Securities Group LLC is not licensed to conduct business, and/or an offer, solicitation, purchase or sale would be unavailable or unlawful. 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.