MLP Market Update

MLP Market Update
Commentary on Master Limited Partnerships

Published
Mar 29th, 2015

Category:
MLP Market Post

Week Thoughts: Safety in MLPs

MLPs finished positive for the second straight week, the first time in 2015 MLPs have been positive for two consecutive weeks.  Oil prices increased, helping the Alerian MLP Index (AMZ) finish up 0.3% this week.  Large capitalization MLPs traded better on average than smaller MLPs this week.  MLPs outperformed both utilities (-2.5%) and the S&P 500 (-2.2%) by a wide margin, an indication of how energy stocks in general are being driven by oil over all other macro forces (absent stock-specific news).  This week it was to the benefit of MLPs, and as oil prices continue to recover over time it should be a tailwind for MLPs.

Weekly Review_3-27-15

Oil price increased 5.6% in the futures market week over week, a second consecutive positive week.  Oil prices rallied Thursday on news of the Saudi-led middle-eastern contingent of countries launching air strikes against rebels in Yemen, increasing tensions among major countries in the Middle East (Saudi Arabia and Iran).  The US dollar also showed continued weakness, helping oil prices early in the week. Oil storage continued to build in the U.S., but the focus shifted to geo-politics this week.

It was refreshing to see MLPs play the defensive role this week, but it still feels choppy with question marks on oil storage, equity issuance and growth question marks for some MLPs.  East Coast is on Spring Break this week, so I’ll keep it short.

Winners & Losers

Two shipping MLPs led the way this week, along with small cap value names CCLP and USDP.  On the downside, each of the bottom five comes from a different MLP subsector, so hard to read much into that.  In general, MLPs have traded pretty erratically with individual names trading in opposite directions of their peers on different days.

Top5Bottom5_3-27-15

 

NMM bounced from worst last week to first this week.  FELP did the reverse, falling back after a strong week last week. NSLP made it a second straight week near the bottom of the sector.

Top5Bottom5_3-27-15_chart

CCLP leads the way so far this year, with fellow compression MLP USAC in the top 5 as well.  Every MLP in the top 5 besides CCLP declined this week.  Upstream MLPs dominate the bottom 5, with 3 E&P MLPs and 1 coal MLP in a tight bunch near the bottom.

Top5Bottom5_3-27-15_YTD

News of the (MLP) World

Much more action in the MLP space this week, including private equity alliances, small pipeline JVs, drop downs, and debt deals.  Despite all the action, we haven’t yet seen the big M&A come through, at least not since the Hiland deal and the Energy Transfer clean up merger with Regency.  PAA, KMI, ETE and others have been vocal about acquisitions, maybe next week some of those deals surface.  IPOs are coming as well.

News-of-the-World

Equity

  • EnLink Midstream (ENLK) priced secondary offering of 22.8mm common units owned by Devon Energy at $25.71/unit, raising $586.2mm in gross proceeds for Devon (press release)
    • Overnight offering, priced at 4.5% discount to prior closing price
    • Traded very poorly in the next session, down an additional 4.7% from pricing, or 9.0% overall from prior closing price
  • Global Partners (GLP) priced secondary offering of 1.96mm common units at $36.10/unit, raising $70.6mm in gross proceeds for selling unitholders (press release)
    • GLP received no proceeds
    • Selling unitholders were owners of AE Holdings Corp.
    • Overnight offering, priced at 5.6% discount to prior closing price, and traded up 1.1% in the next session
  • MPLX filed S-3 to register up to $1.5bn worth of common units (filing)
  • Spectra Energy Partners (SEP) filed equity distribution agreement to sell up to $500mm in equity at the market (filing)

Debt

  • Calumet Specialty Products (CLMT) priced public offering of $325mm of 7.75% senior notes at 99.257% of par (press release)
  • Sunoco LP (SUN) priced public offering of $800mm of 6.375% senior notes due 2023 (press release)

M&A / Growth Projects

  • Sunoco LP (SUN) announced acquisition of interest in fuel distribution business from Energy Transfer (ETP) for $816mm (press release)
    • SUN to acquire 31.6% equity interest in Sunoco, LLC, which distributes ~5.3bn gallons per year of motor fuel across 26 states
  • EnLink Midstream (ENLK) announced acquisition of Victoria Express Pipeline and other Eagle Ford assets from Devon Energy for $171mm today, plus $30-40mm in planned development capex (press release)
    • Direct acquisition from DVN, as opposed to a drop down from ENLC
    • Purchase price represents 10x EBITDA today, 6-8x beyond 2016 including development spend
  • Semgroup Corp (SEMG) announced $500mm Maurepas Pipelines project serving refineries in Coastal Louisiana (press release)
    • SEMG to build 3 pipelines (1 oil and 2 intermediates) between refineries operated by Motiva
    • The project is supported by long-term transportation agreements with Motiva and is expected to be in-service in 4Q 2016
    • SEMG expects to develop the pipeline at SEMG and drop down the assets to RRMS at some point in the future
  • Linn Energy (LINE) announced $1bn equity commitment from Quantum Energy to form strategic acquisition alliance (press release)
    • Quantum were the original backers of LINE, forming the partnership with Mike Linn in 2003, before taking it public in 2006
  • Delek Logistics (DKL) and Plains All American announced JV for development of Caddo Pipeline (press release)
    • Total pipeline cost: $100mm ($50mm each)
    • Joint venture ownership: 50% DKL and 50% PAA, but PAA will operate the pipeline
    • Pipeline will be an 80-mile oil pipeline from East Texas to refineries in Louisiana withinitial capacity of 80,000 barrels per day
    • DKL’s parent company, Delek US (DK – publicly-traded refinery corporation), will be an anchor shipper on the pipeline
  • Delek Logistics (DKL) announced JV with Rangeland for pipeline in West Texas
    • Total pipeline cost: $125mm ($41.7mm net to DKL)
    • JV ownership: 33% DKL, 67% Rangeland, but Rangeland will operate the pipeline
    • RIO pipeline will consist of two terminal facilities and a 12-inch, 107-mile pipeline originating in the Delaware Basin and terminating in Midland, TX with 55,000 barrels per day of initial capacity
    • DKL’s parent company, Delek US (DK) will be an anchor shipper on the pipeline

Other

  • CrossAmerica Partners (CAPL) announced retirement of founder and CEO Joe Topper (press release)
    • Topper will remain in charge until 9/30 to ensure a smooth transition
    • CAPL traded down sharply Friday on the news
    • Incoming CEO Jeremy Bergeron (CST SVP of Integration and Development currently) was quoted in the press release saying “my family and I are thrilled with the prospect of joining the Allentown (PA) community.” 

Published
Mar 22nd, 2015

Category:
MLP Market Post

Week Thoughts: MLP Spring Breakup

MLPs stopped issuing equity, the Dollar faltered, oil and gas prices bounced, interest rates collapsed, the heavens parted…and that’s all it took for MLPs to finally trade up this week.  The Alerian MLP Index rose 1.7%, well ahead of the Alerian MLP Equal Weight version, indicating strength in larger MLPs, something we haven’t seen much of this year. MLPs trailed the S&P 500 (+2.7%) and Utilities (+3.8%), but green is green, so no complaints.

Weekly Review_3-20-15

Oil prices have bounced off their fresh lows hit on Tuesday, helped by broader macro factors that held back the Dollar this week.  Oil inventories had another large build this week, so the oil price bounce still feels shaky.

Deal Break

After 5 equity offerings last week, there was not a single offering this week, and very little deal-making to speak of this week.  And why would there be deals?  Every school in the greater Houston area, it seems, was on Spring Break this week.  Public schools in Memorial (Spring Branch ISD), West University (HISD), the Woodlands, plus private schools St. John’s, Kincaid and Episcopal were all off.  Many MLPs are based in Houston, but a greater percentage of the bankers and lawyers that service them are located there.  I expect they’ll get back to the work of deal making and accessing capital markets next week.

Spring Break

I was in Calgary this week (not for Spring Break).  I heard a few times about a slightly different break in the spring, called spring breakup.  Particular to Canada, spring breakup happens each year when roads are soft from frost melting and heavy equipment can’t travel on those roads, leading to less production activity for a month or so.

Maybe this week’s positive MLP price action represents some kind of thawing of the frost surrounding MLPs. Or maybe it’s just a pause on a path lower for MLPs, because risk-on forces were too soft to let anything heavy weigh on MLPs this week.

Winners & Losers

Marine MLPs led the way this week, with TOO and GMLP having strong weeks.  TOO’s performance was the result of first oil on the Knarr development and TK’s floating production storage and offloading connected to it.  TOO is expected to buy the FPSO from TK at some point in the first half of 2015.  In the oil beta category, DPM showed signs of life, while HCLP traded up with commodity prices.

Top5Bottom5_3-20-15

Even in a positive week, there was a wide range of returns this week.  Oil’s bounce didn’t help the 3 upstream MLPs that made the bottom five this week, 2 of which were repeats from the bottom 5 last week.

Top5Bottom5_3-20-15_chart

The top 5 year to date continues to be dominated by small-cap, non MLP Index names.  The bottom 5 continues to be dominated by commodity exposed MLPs, like EVEP, ARP and ARLP, as you would expect.

Top5Bottom5_3-20-15_YTD

TOO climbed out of the bottom 5 with its big week.  MMLP climbed back near the top of the sector.  CPLP broke into the top 5, presumably on the news that it will be joining the Alerian MLP Index.

Top5Bottom5_3-20-15_YTD_chart

News of the (MLP) World

Equity

  • Black Stone Minerals, L.P. (BSM) files initial registration statement for an MLP IPO to raise up to $100mm in gross proceeds (filing)
    • BSM is one of the largest owners of oil & natural gas mineral interests in the U.S.
    • BSM owns mineral interests in approximately 14.5mm acres, with an average 48.1% ownership interest in that acreage
    • No IDRs

M&A / Growth Projects

  • Magellan Midstream (MMP) announced that Anadarko Petroleum (APC) has exercised its option to acquire 20% of the Saddlehorn pipeline project (press release)
    • The project will be owned 20% by APC, 40% by MMP and 40% by PAA
    • Saddlehorn is a 550-mile pipeline project that will transport oil from the DJ Basin to storage facilities in Cushing, OK expected to cost $800-850mm to construct
    • APC is the parent of Western Gas Partners (WES)
  • Howard Energy Partners, private midstream company partially owned by EnLink Midstream (31%) and Alinda Capital (59%), announced $500mm acquisition from Southwestern Energy (press release)
    • Howard will acquire natural gas gathering assets in northeast Pennsylvania, including 100 miles of gathering pipeline with 600 mmcf/d of capacity and 53,000 horsepower of compression
    • Howard plans to construct a new natural gas gathering system in Tioga County, PA that will add up to 380 mmcf/d of capacity
  • Williams Partners (WPZ) received FERC approval for one project (press release), announced FERC application for another (press release)
  • Buckeye (BPL) announced open season for Cross Town Pipeline (press release)
  • Foresight Energy (FELP) announced that Murray Energy Corporation will acquire a controlling stake in FELP’s general partner (press release)
    • Murray will pay $1.4bn to acquire (1) an 80% interest in FELP’s GP, with 77.5% interest in the IDRs, (2) approximately 50% of the L.P. interest in FELP, and (3) access to other coal handling, transportation and transloading facilities
    • Murray has 12 coal mines and $713mm of 2014 EBITDA, some of which may be dropped down over time to FELP
    • Founder of FELP will retain 22.5% of FELP’s GP and 35% interest in FELP directly

Published
Mar 14th, 2015

Category:
MLP Market Post

Week Thoughts: MLPs Drowning in Oil & Equity

MLPs sold off sharply this week, trading down 4 out of the 5 days.  The Alerian MLP Index (AMZ) closed down 4.3% for the week, and is down 8.1% over the last 3 weeks.  Lower oil prices were the primary driver of the sell off this week, and despite a much lower inventory build this week, oil storage building is the primary concern within the sector right now.

Weekly MLP Review_3-13-15

Piling on top of those fundamental issues were 5 equity offerings for nearly $2bn worth of new MLP paper that was not easily absorbed this week.  There is not much to get excited about after the last three weeks, although there probably won’t be 5 equity offerings next week, so there is that.  With earnings season in the rearview mirror, expect commodity prices to dominate price action in the near-term, with M&A as the only potential slump-buster for now.

Drowning Oil

The S&P 500 declined -0.9%, while utilities outperformed (+0.3%) on lower interest rates week over week.  Oil price declined 9.2% in the spot market week over week, making it 4 straight negative weeks for oil prices.  A strong dollar and seasonally weak refinery demand leading to inventory builds have the biggest contributors to negative sentiment.  Natural gas prices reversed gains from last week, down 6.6% in the spot market.

Since oil prices climbed above $50/bbl a few weeks ago, there has been a rush to raise capital across the energy sector (beyond just MLPs).  Total equity raised by U.S. energy companies so far this year has been more than $10.0bn already ($6.3bn from E&P corporations, $3.7bn by MLPs).  That new supply of equity, combined with lower commodity prices has sent MLPs lower.

Winners & Losers

No trends on the upside this week, except that each of the top 5 did not issue equity this week.  FISH led all MLPs On the downside, commodity price sensitivity was the prevailing theme.  All 5 were upstream focused MLPs, 4 E&P and 1 oilfield services.

Top5Bottom5_3-13-15

There was no real consistency week over week, as shown below.  BBEP went from top 5 to bottom 5, but no other recurring names.

Top5Bottom5_3-13-15_chart

Year to date MLPs have declined 7.7%, but there are a few that have escaped the vortex of falling oil prices.  None of the top five MLPs are in the Alerian MLP Index, and they are generally more thinly traded than other MLPs, which I think helped push a few of them lower than most MLPs in 4Q 2014, so when things first stabilized back in mid-January, they bounced hard.  Upstream MLPs bounced hard in January as well on oil price optimism, but have collapsed with oil the last few weeks, such that several of them are now among the bottom 5.  4 of the bottom 5 are in the Alerian MLP Index (for now).

Top5Bottom5_3-13-15_YTD

Recent volatility is highlighted in the below chart that shows week over week changes in the YTD winners and losers.  EVEP and TOO remain at the bottom, but SDLP and ARP dropped in the bottom five this week.  On the positive side, CLMT and MEMP dropped out of the top 5, FISH and CELP jumped into the top 5, while MMLP went from first overall down to fifth.

News of the (MLP) World

In a continuing theme over the last few weeks, MLPs are rushing to get equity deals done while they can, as the general consensus is that oil prices will be lower in the near-term, given storage builds.  There were 5 equity offerings by MLPs for total gross proceeds of more than $1.9bn, bringing the total equity issued by MLPs through public offerings to $3.9bn in the last month.

Only one of the five offerings this week was accompanied by an acquisition announcement, proceeds from the remainder of the offerings will be used to fund previously announced 2015 capital expenditures related to development projects, which made after-market trading pretty sloppy.

News-of-the-World

Equity

  • EQT Midstream (EQM) priced public offering of 8.25mm common units at $76.00/unit, raising $627.0mm in gross proceeds (press release)
    • One day marketed offering, with a file-to-price decline of 5.54%
    • Proceeds to be used to partially fund drop-down acquisition announced this week
  • Sunoco Logistics (SXL) priced public offering of 13.5mm at $41.76/unit, raising $563.8mm in gross proceeds (press release)
    • Overnight offering, priced at 3.24% discount to prior closing price
    • SXL traded down another 4.0% from pricing in the next session
  • Calumet Specialty Products (CLMT) priced public offering of 6.0mm units at $26.75/unit, raising $160.5mm in gross proceeds (press release)
    • Overnight offering, priced at 3.9% discount to prior closing price
  • Enbridge Energy Partners (EEP) priced public offering of 8.0mm common units at $36.70/unit, raising $293.6mm in gross proceeds (press release)
    • Overnight offering, priced at 3.2% discount to prior closing price
  • Targa Resources Corp (TRGP) priced public offering of 3.25mm shares at $91.00/share, raising $295.8mm in gross proceeds (press release)
    • Overnight offering, priced at 3.6% discount to prior closing price
    • Traded up 0.2% from pricing on a negative day for MLPs
  • Western Gas Partners (WES) filed updated equity distribution agreement to sell up to $500mm of equity at-the-market (filing)

Debt

  • Crestwood Midstream (CMLP) priced $700mm of 6.25% senior notes due 2023 (press release)
    • CMLP will use the proceeds to redeem all outstanding 7.75% senior notes due 2019 and to pay down borrowings outstanding on its revolving credit facility

M&A / Growth Projects

  • EQT Midstream (EQM) announced a $1.05bn acquisition of natural gas gathering pipeline assets from its sponsor EQT Corp (press release)
    • EQM is acquiring the Northern West Virginia Marcellus Gathering System, which gathers natural gas production in the Marcellus Shale, and a 30-mile natural gas pipeline that connects the gathering system to a major processing hub
    • As part of the transaction, EQM entered into a 10-year contract with EQT that eliminates volume and commodity price exposure

Other

  • Alerian announced quarterly rebalancing (press release), removing 3 upstream MLPs from the Alerian MLP Index, and adding the following MLPs:
    • Summit Midstream Partners (SMLP)
    • Capital Products Partners (CPLP)
    • Sunoco LP (SUN)