MLP Market Update
Commentary on Master Limited Partnerships

Published
Jan 4th, 2013

Category:
MLP Market Post

Week Thoughts: Best Week for MLPs Since March 2009

MLPs took off like they were shot out of a cannon this week. We’ll see how long it takes for gravity to take effect. Perhaps gravity will take the form of a fresh slew of equity offerings in the coming weeks, or the next DC crisis which we forestalled for at least a month or two this week. But for now, its all good.

Cannon Shot

MLPs were up each of the 4 trading days, and week over week the MLP Index was up a staggering 7.0%, the best week over week change since March 2009 when the index was up 10.3%. There was clearly some money on the sidelines waiting for the fiscal cliff deadline to pass, or just waiting for the first of the year to allocate capital to the MLP space. The pop has pushed MLPs out to an early lead on the S&P 500.

Weekly Review_1-4-13

This week was so epic, I came up with two analogies for this week’s action (the first being the cannon thingy above). I mentioned this on Twitter, but this week reminded me of the 90s movie PCU. The premise of that movie was that in order to save their on-campus housing, a group of campus outcasts had to bring together all the random politically correct groups (hippies, african americans, feminists, etc.) for an all campus party. Its a fun movie if you’ve never seen it. But this week’s market action was akin to an all campus party after the fiscal cliff. Stocks of all types, all the MLPs, everything was up. The last few years of roller coaster price action has trained us to prepare for a hangover after such parties, but MLPs are well positioned after their “down” year to sustain some out-performance this year.

PCU

Winners & Winners

Not one single MLP had a negative week this week. I can’t remember the last time that happened. Very rare. The high beta, low liquidity names led the pack, with AMID popping 18.5% to lead everyone.

Top5Bottom5MLPs_1-4

I Realize You Have a Choice When it Comes to MLP Content…

Because the content on this site is free, I have no real obligation to continue to produce content here, but the rewards for doing so continue to be incredible. I’ve met (or virtually met) many new and interesting people, gained some new clients, gained plenty of publicity/credibility, and attracted speaking engagements all from this blog. I even got my job from a reader. Since I launched the site in 2009, there has been an explosion of MLP articles in mainstream publications, on Seeking Alpha, Motley Fool and other random blogs like mine. Through all that noise, you all have continued to read this site and tell friends about it,which is much appreciated. Having said all that, my posts these next few months will likely be fewer and with less words than usual. At my day job (at Guzman & Company), we’ve got some very exciting plans for MLP equity research that I will share in more detail here by the end of the month. But for the next 30 days or so, I will be exhausting most of my content producing efforts in the execution of those plans. I hope you understand.

News of the (MLP) World

News-of-the-World

Equity

  • New Source Energy (NSLP) files S-1 for initial public offering to raise up to $106.3mm
    • R.W. Baird leading the deal, which I believe is their first lead managed MLP IPO, so congrats to them on that, score one for the smaller banks
    • Upstream MLP, headquartered in Oklahoma City
    • Will own 14.2 MMboe of proved reserves (as of 6/30/12), 6.8 MMboe additional proved reserves held by sponsor
    • Use of proceeds from the IPO and credit facility borrowings to go to sponsor as consideration for contributed assets
    • 3,316 boe/d projected 2013 production (per S-1),
      • 63.8% NGLs, 4.7% oil and 31.5% natural gas
    • Has incentive distribution rights up to 25%
  • Western Gas (WES) files equity distribution agreement to sell up to $125mm in common units at the market

Debt

  • Vanguard Natural Resources (VNR) announces increased borrowing base from $960mm to $1.2bn in connection with the closing of its previously announced $328.8mm acquisition from Bill Barrett Corp
  • Eagle Rock Energy (EROC) announces increased commitments under its senior secured credit facility from $675mm to $820mm

M&A / Growth Projects

  • Enbridge Energy (EEP) announces $0.2bn further expansion of the Lakehead System to add 230,000 bbl/d of capacity (press release)
    • EEP quoted the investment in decimal point billions, apparently detail in millions too trivial to disclose, must be nice…
    • EEP to expand Lakehead System between Neche, ND and Superior, WI
    • Expansion will add additional 230,000 bbl/d capacity at an estimated cost of approximately $0.2bn
    • Expansion involves increased pumping horsepower, with no line pipe construction
    • Expansion will be included in the Mainline Expansion Joint Funding Arrangement under which 60% of the capital will be funded by Enbridge, Inc and 40% by EEP
    • Expected to be in service in 2015
  • Martin Midstream (MMLP) announces acquisition of Talen’s Marine & Fuel for net investment of $47.4mm after selling certain working capital-related assets to Martin Energy Services (press release)
    • Pretty complex transaction for relatively small dollars, but MMLP likes to offload the marketing pieces of their assets to the parent and keep the MLP assets fee-based
    • MMLP acquired all of the outstanding membership interests in Talen’s Maring & Fuel, LLC, effective 12/31/12, from Quintana Energy Partners, L.P.
    • Simultaneous with the acquisition, MMLP sold certain working capital-related assets to Martin Energy Services, LLC (MES), a wholly owned subsidiary of the GP of MMLP
    • MMLP’s net investment is $47.4mm, funded by MMLP’s credit facility
    • Expected 2013 cash flows to be $6 to $7mm
    • Assets include additional marine fueling barges and tug boats and delivery rolling stock
    • MES amended various service agreements with MMLP pursuant to which MMLP provides certain terminalling and marine services to MES
    • MES markets and distributes marine fuel and lubricants along the Gulf Coast utilizing MMLPs shore-based marine terminals
      • Talen’s Marine & Fuel business will join MES’s existing portfolio
  • QR Energy (QRE) announces $145mm acquisition of oil properties in the Florida Gulf Coast area from Quantum Resources Fund (press release)
    • Purchase price of $145mm, funded by cash on hand and credit facility borrowing, paid in cash to seller, Quantum Resources Fund (QRE’s sponsor)
    • Properties consist of 11.3mmboe of proved reserves (87% oil and 13% NGLs) in the Jay field in the Florida Gulf Coast
    • Expected to produce $35mm in 2013 adjusted EBITDA (4.1x EBITDA multiple) with $11mm maintenance capital expenditures and $3mm in additional G&A expenses
      • Very solid accretion, increases liquids exposure, which is generally a good thing
    • Approximately 2,500 boed with annual decline rate of approximately 9%
  • American Midstream (AMID) announces long-term agreement with Silver Oak Energy to provide midstream services and to construct and operate additional midstream facilities to support Silver Oak’s production in the Woodbine Formation in East TX (press release)

Other

  • DCP Midstream Partners (DPM) announces Wouter Van Kempen to replace retiring Mark Borer as CEO (press release)
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