MLP Market Update

MLP Market Update
Commentary on Master Limited Partnerships

Published
Apr 20th, 2014

Category:
MLP Market Post

Week Thoughts: MLPs Draft the Market, Keep Running

The MLP Index closed the short week at a fresh all-time, up 1.3% since last Friday’s all-time high.  MLPs have been up for 4 straight weeks now.  The equal-weight MLP Index was up more (1.8%), which indicates the rise was broad-based and that smaller cap MLPs outperformed.

Stocks rebounded sharply from last week’s sell-off, and the S&P 500 is now positive for the year.  Also, for the second straight week energy commodities were higher across the board.  The euphoric combination in the stock and commodity markets was enough to help push MLPs higher despite the US 10 Yr being 10 basis points higher week over week.  Utilities were higher this week as well.  In fact, besides US treasuries, it seems that everything was up.

Weekly MLP Review_4-17-14

The MLP Index is now up 3.7% on a total return basis so far in April, on track for a 10th straight positive April, and possibly setting up for a 5th straight negative May.  A positive earnings season and an uptick in strategic M&A activity (which is way down compared with 2013) might help break the cycle.

Did You Know?

Easter is an unusual holiday in that it moves around pretty wildly from year to year.  Easter Sunday 2013 was March 31.  This year it falls on 4-20.  Patriots’ Day, observed as a state holiday in Massachusetts, Maine and (oddly) Wisconsin, falls on the third Monday of April every year.  This year, that’s April 21st, which is the latest possible date in a year that the holiday can fall.  Last year (when the day and the Boston Marathon that falls on that day were ruined by two backpack/rice cooker bombs) it fell on April 15, the earliest possible date in a year that the holiday can fall.

While trading results historically have not trended either positively or negatively for MLPs on the week after Easter Sunday, did you know there is an ongoing streak for the week of Patriots’ Day?  For 9 straight years (correlating with the current 9-year April winning streak discussed here a few weeks ago), the Alerian MLP Index has traded up the week of Patriots’ Day.  While interesting, you can go ahead and file that inconsequential fact alongside others found here before.

Marathon

Whether or not MLPs pull out in front of the pack this week, or spend another week drafting the crowd, it will be good to see Boston out in full force to support this year’s marathon runners and pay tribute to last year’s tragedy.

Winners & Losers

Often when I look at the best performing MLPs in a given week, it’s hard to discern a theme.  This week’s winners included 2 natural gas pipeline MLPs and 3 refined products drop-down MLPs.  BWP got an analyst upgrade that seemed to confirm its rally the last few weeks.  The other natural gas pipeline MLP in the top 5, SEP, may have been up in sympathy with BWP and on EPB and KMP natural gas pipeline volumes strength reported.  The refined products drop down MLPs in the top 5 (VLP, MPLX and PSXP) have seemingly been up continuously since their respective IPOs, but this week these high flyers were up sharply in unison on no news.  It may have just been a case of a growth-on week, and these are some of the growthiest MLPs out there.

On the negative side of the ledger, there were no discernable trends and none of the bottom 5 had any news.  GSJK has been one of the best performing MLPs year to date, so its pause this week is probably the case of some profit taking in a highly illiquid name.

Top5Bottom5_4-17-14

Top5Bottom5_4-17-14_chart

Year to date winners and losers are shown below.  BWP’s 28.4% rally from its March 13th bottom still leaves it 2000 basis points behind the next worst MLP so far in 2014.  EPB and LGCY moved out of the bottom 5, replaced by SPH and APL.  On the positive side, PSXP reclaimed the top spot, and EQM (another natural gas MLP performing well) rejoined the top 5, displacing RNO. The broad-based April rally we’re in the middle of has narrowed the range between the highest and lowest performing MLPs, which is good for the MLP sector generally.

Top5Bottom5_4-17-14_YTD

Top5Bottom5_4-17-14_YTD_chart

News of the (MLP) World

Kinder Morgan’s complicated complex (which could be the title of a children’s book..) reported 1Q results that were generally positive.  KMP’s organic growth project backlog grew to $14.9bn from $13.5bn quarter over quarter.  KMP distribution coverage came in at 1.1x in what is seasonally a strong quarter for KMP results.  Natural gas pipelines segment benefitted from a cold winter that drove volumes higher.

Rich Kinder kicked off the conference call by highlighting a Wood Mackenzie report that calls for growth in natural gas demand of 23 bcf/d in the next 10 years.  Kinder concluded that the 23 bcf/d estimate understated the potential demand from all sources, including: LNG exports, additional natural gas electric generation, and increase in industrial use, and exports to Mexico.  He also referenced several other third party reports that estimated large capex requirements to manage natural gas production growth.  It was a different and much less combative opening monologue on the conference call than last call, focusing on the macro opportunities for natural gas rather than KMI/KMP stock prices (transcript).

Earnings season starts to ramp up this week, with NS and EQM reporting, followed by a steady flow of earnings releases (and distribution announcements) until the second week of May.

It was pretty quiet on the transaction front this week, with no equity, one debt deal and no meaningful acquisitions.

Equity

No deals.

Debt

  • Plains All American prices offering of $700mm of 4.70% senior notes due 2044 at 99.734% (filing)

M&A / Growth Projects

  • Kinder Morgan Energy (KMP) announces successful open season for the proposed Broad Run Flexibility and Broad Run Expansion Projects on its Tennessee Gas Pipeline Company (TGP) (press release)
    • KMP awards 100% of the 790 dekatherms/day capacity across the two projects to Antero Resources under a 15 year contracts
    • Anticipated capital cost of the projects: $782mm
    • Project will provide outlets for natural gas sourced from the Utica and Marcellus Shales
  • Western Refining, parent of Western Refining Logistics (WNRL) announces plans to construct new 40-mile pipeline in the Delaware Basin (press release)
    • Pipeline will originate from WNRL’s existing Mason Station crude oil gathering facility in Reeves County and will terminate at a new crude gathering facility at Wink Station in Winkler County, TX
    • Pipeline will be capable of transporting 125,000 barrels/day of light crude oil and condensate for delivery to common carrier pipelines at Wink, TX
    • Expected to be in-service by 2015

Other

  • Genesis Energy (GEL) announces resignation of President and COO Steve Nathanson, effective April 30th (press release)

Published
Apr 13th, 2014

Category:
MLP Market Post

Week Thoughts: MLPs Yield Gains

MLPs trounced the broader market this week, with the MLP Index up 0.6% to close the week at new all-time highs.  Meanwhile, the S&P 500 dropped 2.6%, and is now down 4.0% from its own all-time high.  MLPs actually were right on top of the broader market through Wednesday, then way outperformed Thursday and Friday to pull ahead for the week.

For this week at least, MLPs moved in lockstep with interest rates sensitive securities like Utilities (UTY +0.7% this week) and in the opposite direction of interest rates (10-yr treasury rate down 9 basis to 2.62%, lowest level since early February).  Energy commodity prices were universally up, led by natural gas (+4.1%).

Weekly MLP Review_4-11-14

 

Large cap MLPs out-performed small cap MLPs this week, with the Equal Weight MLP Index up just 0.1%, which indicates money flowing into MLP products (ETFs, ETNs, open-end funds) that tend to have higher concentration in liquid names.  This marks the third straight week that MLPs were up, the longest streak of weeks since the 5 week streak from mid-January to mid-February of this year.  

Interest Rate Audible

The interest rate situation is surprising the market this year.  The US 10 Yr closed 2013 at 3.03%, and consensus was that rates would continue their upward trend from 2013 as the economy continued to improve.  But the markets have a way of zagging when you expect them to zig, and the 10 year rate is down 40 basis points so far in 2014.  Investors reacted to that this week, calling an audible back to the old standby yield play.  Hiding out in MLPs until the dust settles on the high growth tech and bio-tech stocks that were sold off this week. The highest growing and most richly valued MLPs and midstream corporations are still flying, and now with a tailwind.

Private Letter Rulings

MLPs made mainstream financial news this week when the Wall Street Journal reported on the IRS’s pause in issuing new private letter rulings (PLRs).  I meant to report on this pause here, but somehow just reported it internally.  I first heard about the IRS PLR pause back on March 19th from a presentation Mike O’Leary (Partner at Andrews Kurth) gave in Houston.

The news has slowly trickled out in research analyst reports and finally this week we get a story on it, with a pretty juicy headline (“Energy Spinoffs are Moving into Tax Limbo”), which is slightly misleading.  MLP tax status is not in question or in limbo for existing MLPs and companies forming MLPs with assets that are similar to existing MLP assets that have received PLRs.  Less supply of fringe MLPs probably doesn’t hurt existing MLPs and their stock prices.  But time will tell if the IRS really does halt the expansion of MLP PLRs that has ramped up in recent years.

Winners & Losers

Enable Midstream (ENBL) was technically the winner of the week on the back of its 11.0% IPO pop Friday. But of MLPs that existed at the beginning of the week, PSXP led the sector with a 10.3% increase on enthusiasm following its analyst day.  The same could be said of CQP, with enthusiasm from last week’s analyst day and the announcement of a new LNG sale agreement between CQP’s parent Cheniere Energy, Inc (LNG) and Endesa for the Corpus Christi terminal (press release).  HCLP had some interesting trading around its equity offering, which ended in a 7.5% decline Friday and a 6.2% negative week overall.

Not much of a theme among the rest of the big movers this week.  GSJK continued its torrid pace, up another 5.2% this week after 15.9% last week. 

Top5Bottom5_4-11-14

Top5Bottom5_4-11-14_chart

Year to date, no changes among the top and bottom five constituents, only real move was PSXP leapfrogging TEP.  The Index overall is up 4.3% for the year, well ahead of a negative broader U.S. stock market.

Top5Bottom5_4-11-14_YTD

Top5Bottom5_4-11-14_YTD_chart

News of the (MLP) World

This week was pretty quiet, outside of the Enable Midstream IPO, and the Hi-Crush flurry of activity.  We did get the beginning of distribution announcement season, with EPD, PAA and GEL all announcing distribution increases in-line with their recent distribution growth rates.  With Targa’s pre-announced better than expected quarter a few weeks ago and with distribution growth tracking expectations, excitement seems to be building towards earnings season that kicks off this week with the Kinder Morgan complex.  Strong earnings and guidance follow-through would likely help justify MLP valuations, and could possibly even break the recent streak of poor performance in May.

News-of-the-World

Equity

  • Enable Midstream (ENBL) prices IPO of 25.0mm common units at $20.00/unit, raising $500mm in gross proceeds (press release)
    • Priced at midpoint (5.75% yield)
    • First day trading: opened at $21.50 (+7.5%), high of $23.22 (+16.1%), closed at $22.20 (+11.0%)
    • Now trades at 5.18% yield
    • Largest change in total equity value for an MLP on its first day of trading ever, with $916.7mm of equity value added to ENBL on day one.  See chart below.

IPO Equity Value Pops

    • The unusually large size and corresponding limited float (6% L.P. interest, $500mm value) of ENBL makes this value creation possible on day one even with a percentage IPO pop (11.0%) that doesn’t even make the top 20 of all time.  The closest comparable in the space to this sort of IPO from a float perspective is WGP, which sold 8% of the entity in its IPO that then created $1.2bn of value in its first day as a public GP holding company.  WGP has a much different growth profile than ENBL, though.
  • Legacy Reserves (LGCY) prices public offering of 2.0mm 8% Series A fixed-to-floating rate cumulative redeemable perpetual preferred units at $25.00/unit, raising $50.0mm in gross proceeds (press release)
  • Hi-Crush Partners (HCLP) prices public offering of 4.25mm common units at $41.29/unit, raising $175.5mm in gross proceeds (press release)
    • One day marketed offering, with file-to-price increase of 2.4%
    • That increase was followed by a steep decline of 7.4% the day after pricing, which is exactly the opposite of what you might expect to happen, and for that I have no explanation…

M&A / Growth Projects

  • Tesoro Logistics (TLLP) announces binding open season by subsidiary Tesoro High Plains Pipeline Company (THPP) and announces another open season on a proposed new THPP gathering system (press release)
  • Hi-Crush Partners (HCLP) announces acquisition of equity interests in Hi-Crush Augusta LLC for $224.3mm in cash consideration (press release)

Published
Apr 5th, 2014

Category:
MLP Market Post

Week Thoughts: April Flowers

The MLP Index was up 2.3% this week in a broad-based rally, and it was the best week for the index since late October.  It also marks the second straight week of large outperformance of the MLP index over the S&P 500.  The US 10 year interest rate was flat, despite rising as high as 2.80%, before dropping back down.  Energy commodity prices were largely down for the week, but NGL prices were mixed with propane up and ethane down.  There was no clear cut catalyst for MLPs to outperform to such a degree, it appears just to be a case of improving sentiment specific to MLPs.

Weekly MLP Review_4-4-14

I’m going to be long on charts and short on words this week.  I do have a day job, after all.

Monthly Recap

For a quick update on the madness of March, MLPs were up 1.5% for the month, making it the best month for MLPs so far in 2014.  TEP was the best performer in the month (+16.2%), and was in the top 5 for the second straight month. High growth and crude MLPs dominated the top 5, while upstream MLPs (LINE, MCEP, LGCY) filled out the bottom 5.  There were no repeats in the bottom 5 month over month.

Top5Bottom5_March14

Top5Bottom5_March14_Chart

MLPs started off April on a very strong foot this week, which if you have followed the Alerian MLP Index, is to be expected.  April has been a positive month for the index for 9 straight years.  As shown below, that’s far and away the longest current streak.  The longest streak ever (with the index data that goes back to 1996) was July, which was positive for 11 straight years from 1996 through 2006.

Consecutive Months

Below is an update to the best returning months for the MLP index ranked from best to worst.  April has been near the top of the list, but May is looming as typically a bad month for MLPs.

Monthly returns_April

Winners & Losers

A rising tide lifts all boats, including BWP (+7.4%), KMP (+3.7%) and EPB (+4.7%), which all showed signs of life this week.  Not all the laggards went higher, as EROC (-2.8%) is still beached.

Small cap compression MLP GSJK was up 15.9% on no news.  NGLS was up 9.9% (and up more than its sponsor TRGP) on its announcement that 1Q and 2014 results will be better than expected.  Not pictured in the chart below, variable distribution MLP EMES was up 12.0% Friday, 25.5% for the week, 63.3% year-to-date, and 325.9% in less than a year since its IPO at $17.00/unit on 5/8/13.

Top5Bottom5_4-4-14

Top5Bottom5_4-4-14_chart

Year to date, every one of the bottom five from last week improved this week, except for EROC.  LGCY dropped into the bottom five to replace SPH.  No changes week to week among the names in the top five, but GSJK catapulted to the top of the list at 44.0% total return for the year.  As noted above, variable distribution MLP EMES has outpaced everyone with 63.3% total return year to date.

Top5Bottom5_4-4-14_YTD

Top5Bottom5_4-4-14_YTD_chart

Updated IPO Backlog

It was a very busy week for securities attorneys working for MLPs.  Enable Midstream Partners launched its IPO, detailed of which are in the news section below.  Foresight Energy Partners filed an updated S-1 nearly two full years after its last filing, and for an IPO that will potentially be 3 times as large (up to $300mm in latest filings, vs. $100mm in original 2012 filing).  PBF Logistics, which had previously filed a bare bones registration statement back in August confidentially, has now made its first official public filing for its IPO.   These filings come on the heels of last Friday’s Dominion Midstream MLP IPO filing.

IPO Backlog_4-4-14

Also, not on the list above, Hoegh LNG Partners (owner of 3 floating LNG regasification units) has confidentially filed a registration statement for an MLP IPO.  In total, that’s 5 MLP IPOs that are much more real than they were a week ago, even if they were all expected to execute MLP IPOs at some point.  Also, not on this chart, Memorial Resource Development Corp (the GP of upstream MLP Memorial Production Partners) filed for an IPO of its own.

News of the MLP World

The news was all splitters and IPOs this week, with some debt deals sprinkled in…

News-of-the-World

Equity

  • Enable Midstream (ENBL) launches MLP IPO with 5.75% midpoint IPO yield (latest S-1)
    • Midpoint price of $20.00 would raise $500mm in gross proceeds
    • Implied equity value of $8.3bn and $10.2bn of enterprise value at IPO would make this the largest MLP at its IPO ever
    • Selling just 6% of the company, with sponsors Centerpoint, OGE and Arclight retaining the remaining units
    • Next 12 months projections: $848mm of EBITDA, $550mm of distributable cash flow, 1.15x coverage
  • PBF Logistics (PBFX) files initial S-1 to sell up to $100mm of common units in an MLP IPO (filing)
    • PBFX is a refined products subsidiary MLP of PBF Energy Inc. (NYSE: BPF)
    • Next 12 months EBITDA of $44.0mm
    • Initial assets include Delaware City Rail Terminal and Toledo Truck Terminal, and PBF retains several other crude and refined products logistics assets for eventual sale down to PBFX
  • Foresight Energy (FELP) files revised S-1 to sell up to $300mm of common units in an MLP IPO (filing)
    • Thermal coal mining operator, backed by Riverstone, FELP had filed its original S-1 in February 2012, and the last updated S-1 before this one was filed nearly 2 years ago
    • Next 12 months projections: $387.7mm of EBITDA, $190.8mm of distributable cash flow
  • Hoegh LNG Partners files confidential registration statement for MLP IPO of indeterminate size (Reuters)
    • Hoegh LNG Partners will own 3 floating LNG storage and regasification units
  • Sunoco Logistics (SXL) files  equity distribution agreement to sell up to $250mm of common units at the market (filing)
  • Memorial Resource Development Corp (MRD) files initial S-1 to raise up to $700mm in an IPO (filing)
    • MRD is the sponsor of upstream MLP Memorial Production Partners (MEMP), owning 50% of the IDRs and 8.7% L.P. units
    • MRD also owns 1.1 Tcf of proved reserves of its own

Debt

  • Sunoco Logistics (SXL) prices $1bn offering of senior notes in two tranches (press release)
    • $300mm of 4.25% senior notes due 2024 at 99.774% of par
    • $700mm of 5.30% senior notes due 2044 at 99.836% of par
  • Exterran Partners (EXLP) prices $350mm private placement of 6.00% senior notes due 2022 at 98.371% to yield 6.25% (press release)

M&A / Growth Projects

  • Magellan Midstream (MMP) announces plan to construct $250mm condensate splitter (press release)
    • Splitter will be constructed at MMP’s Corpus Christi terminal and will be capable of processing 50,000 bbls/d of condensate
      • Expandable by an additional 50,000 bbls/d
    • Splitter is supported by a long-term, fee-based, take-or-pay agreement with Trafigura AG
    • MMP to construct more than 1 mm barrels of storage, dock improvements and two additional truck rack bays at the terminal
    • Project expected to be complete and operational during the second half of 2016
  • Crestwood Midstream (CMLP) announces further expansion of its Willow Lake Project in the Permian Basin (press release)
    • Phase 2 of the expansion will include construction of a cryogenic natural gas processing facility with 20 mmcf/d capacity and additional gathering pipelines across the acreage dedications included in Phase 1
    • Phase 2 expected to cost $25mm to $30mm and is expected to be completed in 3Q14
  • Targa Resources Partners (NGLS) announces $115mm condensate splitter on the Houston Ship Channel, and 40 mmcf/d cryogenic processing plant in the Williston Basin (press release)
    • Splitter will be constructed at its Channelview Terminal, backed by a long-term, fee-based contract with Noble Group
      • Will have capability to split 35,000 bbls/d of condensate into its various components
      • Splitter is expected to be completed ~18 months after all permits have been obtained
    • The Williston processing plant in the Williston Basin will effectively double capacity to support Bakken and Three Forks shale plays
      • Plan could be on line before the end of 2014
    • These project updates were part of a press release in which NGLS also raised its 2014 EBITDA to a midpoint of $850mm, up 13% from its prior $750mm guidance midpoint on the back of strong demand and throughput at its LPG facility

Other

  • WMB explosion at natural gas liquids storage facility in Washington (Oregon Live)