MLP Market Update

MLP Market Update
Commentary on Master Limited Partnerships

Published
Jan 24th, 2015

Category:
MLP Market Post

Week Thoughts: MLPs Buoyant Into Earnings

MLPs continued the rally that began on 1/14/15 this week, finishing up 3 out of 4 days, even as oil prices dropped to fresh lows.  For the week overall, the Alerian MLP Index (AMZ) increased 3.0% and the Alerian MLP Equal Weight Index (AMZE) increased 2.8%.  In the 7 trading days since the 1/13/15 bottom, the AMZ has rallied 7.9%, while the AMZE has rallied 5.9%.  MLPs are still down for the year, but have an outside shot at a positive January, which seemed very unlikely a few weeks ago.

Weekly MLP Review_1-23-15

The broader U.S. stock market was stronger this week, with the S&P 500 up 1.7%.  Oil prices finished 6.7% lower this week, closing at a fresh 52-week low of $45.44.  Oil dropped on a higher inventory build than expected on Thursday (plus a stronger dollar), and fell again Friday after the death of King Abdullah of Saudi Arabia.  Natural gas erased last week’s 5.1% gain with a 5.1% decline.

Winners & Losers

Out of index, small-cap MLPs led the way this week taking the top 3 performance slots.  High-growth drop down names rounded out the top 5, with both VLP and PSXP up 12.4%.  On the downside, it was a mixed bag with recent IPO RMP down the most at 10.5% (and now down 13.5% since IPO).  EVEP was the only upstream MLP in the bottom 5 this week despite two distribution cuts from other upstream MLPs.

Top5Bottom5_1-23-15

EVEP was the only repeat offender on the bottom 5.  In the top 5, follow through has been limited, with winners fluctuating wildly from week to week.

Top5Bottom5_1-23-15_chart

Upstream MLPs occupy 4 out of 5 worst performing MLP spots so far this year. 2 Smaller, out of index MLPs make up most of the top 5.

Top5Bottom5_1-23-15_YTD

 

Top5Bottom5_1-23-15_YTD_chart

News of the (MLP) World

Kinder Morgan’s big news and earnings release captured all the attention this week.  KMI will try to hold that attention at next week’s analyst day.  Earnings releases of actual MLPs start this week with EPD, NS and a few others this week.  The fire hose of earnings releases that’s coming in the next few weeks will be a welcome change from a few pretty quiet months in terms of company-specific data points.  Some of the news won’t be pleasant, but at least it will help the market differentiate between which MLPs are in trouble and those that are not.

News-of-the-World

Debt and Equity

  • No transactions this week. As expected, it’s been a very slow start for MLP capital markets in 2015.

M&A / Growth Projects

  • Sunoco Logistics (SXL) announced successful open season for Delaware Basin oil pipeline extension project (press release)
    • The project includes 125 miles of new pipeline with initial capacity to transport 100,000 bbls/d of oil from the Delaware Basin production area to Midland, Texas
    • Pipeline will be in operation by the first half of 2016
  • Kinder Morgan, Inc. (KMI) announced $3.0bn acquisition of Hiland Partners, a private energy company owned by billionaire Harold Hamm (press release)
    • Hiland owns natural gas gathering and processing assets, oil gathering assets and the Double H oil pipeline in the Bakken Shale
    • Some of these assets were part of a public MLP Hiland Partner that went public in 2005 and was bought back by Harold Hamm in 2009
    • KMI expects the transaction to be modestly accretive to cash flow per share and expects the purchase price to represent a 10x multiple of 2018 EBITDA
    • KMI will need some serious equity to permanently finance this acquisition and maintain its 5.5 debt/EBITDA
  • Enterprise Products (EPD) announced it will move forward with Panola pipeline expansion after receiving customer commitments (press release)
    • The Panola NGL pipeline expansion includes adding 60 miles of new pipeline, as well as pumps and other equipment to increase capacity on the system by 50,000 bbls/d
    • The Panola NGL pipeline system originates near Carthage, Texas and extends to Mont Belvieu, Texas
    • Expansion expected to be in-service by 1Q 2016 and to expand capacity

Published
Jan 18th, 2015

Category:
MLP Market Post

MLP Week Thoughts: Bottoms…Up

What a week! The Alerian MLP Index dropped like a rock to start the week, closing Tuesday at a fresh 52-week low that was 6.0% lower than last Friday.  On the back of stabilizing oil prices, MLPs traded better the rest of the week, including a 3.3% pop on Friday, to finish the week down just 1.4%.  The Alerian MLP Equal Weight Index (AMZE) declined 3.0%, which highlights how midstream MLPs outperformed, a sign that some risk differentiation might be developing.

Weekly MLP Review_1-16-15

It’s been a risk-off year so far, with the broad market down 2%, interest rate on the 10-year are down to 1.82%, and utilities have picked up where they left off up and are up 3.3%.  Oil was volatile all week, but rallied after hitting a new low Tuesday to finish the week slightly positive (U.S. oil spot price +0.7% week over week), breaking a streak of 6 straight declining weeks.  Oil rallied 6.1% from Tuesday’s close to the end of the week.  Natural gas was volatile as well, but finished up 5.1% for the week.

Winners & Losers

Oil stabilizing didn’t help upstream MLPs much this week.  4 of the bottom 5 were upstream MLPs.  Only one of the top 5 this week was in the Alerian MLP Index (GEL).  FISH popped 14% on the news that its GP was acquired and its growth rate would be accelerated.

Top5Bottom5_1-16-15

Last week, midstream MLPs dominated the bottom five.  Not so this week.

Top5Bottom5_1-16-15_chart

It’s still very early on, but a theme is emerging on the downside so far this year (upstream MLPs still weak). On the upside, the names are spread across subsectors, but they are all smaller, more thinly-traded MLPs.

Top5Bottom5_1-16-15_YTD

 

Top5Bottom5_1-16-15_YTD_chart

News of the (MLP) World

There were encouraging signs for MLPs from the capital markets this week, as two non-investment grade MLPs successfully raised debt capital. Also, there were positive signs that strategic transaction opportunities for MLPs are beginning to emerge from the volatility.  The Azure Midstream acquisition of Marlin Midstream’s GP is a sign of things to come.  Azure was going to go public, but saw the opportunity to avoid the capital markets and get public quicker.  There will be more transactions that would have otherwise been IPOs.  Whether that’s producers shedding assets to MLPs when last year they would have gone IPO, or MLPs buying MLPs.

News-of-the-World

Debt

  • Targa Resources (NGLS) priced $1.1bn of 5.0% senior notes due 2018 at par (press release)
    • NGLS will use the proceeds from the offering to fund tender offers for bonds outstanding at Atlas Pipeline Partners (APL – gathering & processing MLP), in connection with and conditioned upon the proposed merger between NGLS and APL
    • Offering was upsized from $800mm initially offered
    • Positive indication of the ability for other MLPs to access the debt capital markets
  • SunCoke Energy Partners (SXCP) priced $200mm of 7.375% senior notes due 2020 at 102% of par (press release)
    • Proceeds from the offering will be used to partially finance the acquisition of a 75% interest in a cokemaking facility in Illinois owned by its sponsor

M&A / Growth Projects

  • Marlin Midstream (FISH) announced the sale of its general partner and 90% of its incentive distribution rights to private company Azure Midstream Energy, LLC (press release)
    • As part of the transaction, FISH will acquire Azure’s Legacy gathering system in East Texas and northern Louisiana for $162.5mm
    • Azure will retain additional assets to sell down to FISH over time
    • Azure (owned by private equity firm Energy Spectrum) had been planning an MLP IPO of these assets, but this is a short cut
    • The Legacy acquisition and the future drop-down acquisitions combine to raise FISH’s distribution growth profile, and FISH’s stock price reflected that re-rating this week
  • Bloomberg reports that three large MLPs were among the bidders for a large pool of midstream assets owned by Pioneer Natural Resources (Bloomberg)
    • The assets are said to be worth as much as $3bn, and include natural gas and condensate infrastructure in the Eagle Ford Shale in South Texas
    • The MLPs were Williams Partners (WPZ), Enterprise Products Partners (EPD) and Energy Transfer Partners (ETP)
  • Enlink Midstream (ENLK) announced acquisition of oil logistics company for $100mm (press release)
    • ENLK continues to execute its plan to use its investment grade balance sheet and debt capacity to make accretive acquisitions
  • SunCoke Energy (SXCP) announced $245mm drop-down acquisition of interest in a cokemaking facility (press release)

Published
Jan 10th, 2015

Category:
MLP Market Post

MLP Week Thoughts: Slippery Start

MLPs tumbled this week after 3 straight positive weeks.  The Alerian MLP Index (AMZ) had rallied 11.6% off of 12/15 lows through last Friday, but gave around half of that back this week.  The equal weight version (AMZE) held up better, as some of the commodity sensitive and smaller MLPs have caught a bid, while the biggest MLP EPD dropped 6.8% this week.  MLPs under-performed the broader market by quite a bit this week, continuing the trend from last year.

Weekly MLP Review_1-9-15

Interest rates dropped another 15 basis points to below 2% again. Oil prices dropped another 8.4%, but did pause late in the week to finish the week around $48/bbl.  Natural gas prices declined week over week, despite bitter cold in the Northeast.  With commodity prices still declining, the January effect has not happened for MLPs so far this year.

A 3.2% decline in the first 6 days of the year is the worst start on record for the AMZ in 20 years of data.  The most the index has ever declined in January is 1.4% in 2004, and we haven’t seen a negative January in 7 years.

There is not much positive to say about MLPs at the moment, except maybe that there is no tax loss selling pressure (at least for a few months).  Trading volume is lighter than it has been, as it seems MLPs are being ignored or dismissed to some extent.

MLP earnings kick off in a few weeks, and we’ve started to see distribution announcement already.  Absent company-specific news or a turnaround in commodity prices, MLP trading should continue to be choppy.

Stay tuned next week for the 2015 MLP Over Unders, our 4th annual look at expectations for various data points in the MLP sector.

Slippery When Wet

I watched Home Alone a few times over the holidays.  Among the many sight gags in that move, there is one where Joe Pesci’s character slips on the iced front steps of the house, falls flat on his back, struggles his way up again only to fall back on his back again.  That’s kind of what the MLP sector feels like right now, slippery.

Pesci Down

Winners & Losers

NMM announced an acquisition that sparked its big rally.  NKA popped 22.9% on no company-specific news.  HCLP bounced back from last week’s bottom 5 finish.  GLP may have been helped by cold weather, given its heating oil business and strength in gasoline margins.  On the downside, there were some very large downward moves.  Two Marcellus-focused midstream companies made the bottom 5 this week: AM declined around 15% on an analyst downgrade, which appeared to drag down MWE as well.  Upstream MLPs are notably absent from the bottom five this week, despite two distribution cuts from that group late last week.

Top5Bottom5_1-9-15

Top5Bottom5_1-9-15_chart

The YTD numbers so far aren’t that different given then include just one extra day, but some marine transportation names creep into the bottom five on a YTD basis.

Top5Bottom5_1-9-15_YTD

News of the (MLP) World

GLNG tested the MLP equity waters this week by selling some of its GMLP units in a public offering.  They found offering underwriting to be in line with normal times (3.9% discount), but in the aftermarket GMLP units were slammed another 7.3%.  It may be some time before we see another MLP try to launch a marketed equity offering, without attaching it to an M&A or growth project announcement.  In this market, we may see more creative solutions like LINE did with Blackstone, or like we’ve seen in the space before with private equity infrastructure funds providing capital to MLPs.  Or we may see some weaker MLPs welcome the warm embrace of a merger/ acquisition by a large-cap investment-grade MLP.

News-of-the-World

Equity

  • Golar LNG Partners (GMLP) priced public offering of 7.17mm units at $29.90/unit, raising $214.4mm in gross proceeds to the selling unitholder (press release)
    • 100% secondary offering, no new units issued
    • Selling unitholder is GLNG, GP of GMLP
    • Priced at 3.9% discount to prior closing price, traded down another 7.3% in the next trading session
    • Proceeds to be used to fund development of FLNG assets to sell down to GMLP in the future
  • Regency Energy (RGP) filed equity distribution agreement to raise up to $1.0bn in equity proceeds at-the-market (filing)

M&A / Growth Projects

  • NuStar Energy (NS) announced the acquisition of the remaining 50% interest in Linden, NJ refined products terminal for $142.5mm (press release)
    • Acquired interest is expected to generate $20mm of incremental EBITDA in 2015 (7.125x multiple)
    • The Linden terminal has 4.3mm bbls of refined products storage capacity, primarily storing gasoline, jet fuel and fuel oils
    • The terminal has inbound connections to the Colonial and Sun pipelines and an outbound connection to the Buckeye Pipeline
  • Delek Logistics (DKL) announced new agreements for the Paline Pipeline (press release)
    • Under the new pipeline agreements, DKL will receive a fixed monthly fee over the course of the next 18 months
    • Based on these agreements, annual distributable cash flow is expected to increase $13.6mm (or approximately $1.00/bbl) over 2014
    • Separately, DKL announced a $12mm ac quisition that is expected to generate $2.4mm of EBITDA (5.0x multiple)
  • Tallgrass Energy (TEP) offered additional 33.3% interest in Pony Express Pipeline by sponsor (press release)
    • TEP acquired 33.3% of the Pony Express Pipeline, LLC in 2014
    • Pony Express is a 690-mile crude oil pipeline commencing in Guernsey, Wyoming and terminating in Cushing, OK that was placed into service in 2014
  • Navios Maritime (NMM) announced $147.8mm acquisition of a drybulk vessel (press release)
    • The acquired vessel has been chartered under a 12-year agreement that is expected to generate $18.4mm in annual EBITDA (7.0x multiple)

Distribution announcements have been in-line with expectations for the most part (with the exception of upstream MLPs), but it’s still early in distribution season.  Distribution announcements this week:

  • TEP: +18.3% qoq, +54% yoy
  • PAGP: +6.4% qoq, +27% yoy
  • GEL: +2.6% qoq, +11.2% yoy
  • PAA: +2.3% qoq, +9.8% yoy
  • EPD: +1.4% qoq, +5.7% yoy
  • APL: $0.64/unit, unchanged from last quarter