Week Thoughts: Sluggish MLPs Fall Behind

The see-sawing week to week since June finally ended with a second straight losing week for the Alerian MLP Index.  But this time MLPs way under-performed the S&P 500, despite oil prices closing out the week at a new 52-week high (although natural gas and lighter NGLs were down sharply).  Rising interest rates likely had something to do with the MLP sell off, as the US 10-year Treasury rate peaked intra-day above 3.0% on Thursday, and settled up 19 basis points for the week (and 118 basis points so far this year).  The S&P 500 also took over the lead vs. MLPs for YTD total returns.

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Not much else to say, too much yard work and actual work to get done this weekend…Looking forward to hearing more about Syria and the Fed this week, aren’t you?

Winners & Losers

Odd mix of winners and losers this week.  One compression MLP was in the bottom 5, one in the top five on no news.  No upstream MLPs in the bottom five at all.  The big noise was around KMI and the pending Hedgeye report where they plan to expose KMI as a “house of cards”.  It is amazing how much publicity these guys have generated through social media and how quickly the MLP sector can be worked up into a tizzy.  KMI was down 7.1% this week, expect more fireworks next week when the report actually gets released.  I expect equity research analysts to defend KMI and KMP.

I like KMI, have owned it in separate accounts since its dip below $30 shortly after its IPO, and in our fund we own call options on it, and we’ve sold puts on it as well.   We like it because KMP and EPB are run with tight coverage and therefore both need equity very frequently, so why not own a piece of the company that holds an non-dilutive override on distributions made to any of those new units.

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EQM had a good week, and popped into the top 5, no other constituents changed.

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News of the (MLP) World

One debt deal, another on the road this week.  No equity offerings, but MWE filed an updated and much larger ATM.  This week, we’ll see probably a few equity deals.  On the IPO front, Plains GP Holdings, Western Refining Logistics, and MidCoast Energy Partners updated their S-1s.  OCI Resources launched its IPO.

News-of-the-World

Equity

  • MarkWest Energy (MWE) files equity distribution agreement to sell up to $1.0bn of primary common units and 0.8mm of units offered by a selling unit holder
  • OCI Resources launches IPO with 10% mid-point yield

Debt

  • Regency Energy (RGP) prices offering of $400mm of 5.75% senior notes due 2020 at par

M&A / Growth Projects

  • EV Energy (EVEP) announces acquisition of Barnett Shale natural gas properties for $67.6mm (press release)
    • EVEP to acquire 31% in properties acquired with EnerVest from Carrizo Oil & Gas, Inc. to be funded with proceeds from its Utica Shale acreage sale and with credit facility borrowings
    • Asset details:
      • 82 wells, 17,000 gross acres (9,500 net), 100% held by production, located in Tarrant County, TX
      • 62.3 Bcf of proved reserves to EVEP’s interest, 100% natural gas and 58.4% proved developed
      • Net daily production of 13.1 MMcf/d
    • Expected to close by 10/31/13
  • Susser Petroleum (SUSP) announces acquisition Gainesville Fuels Inc., to be contributed from Susser Holdings for $2.0mm in SUSP units, and a one-time non-cash deferred tax charge of approximately $3.6mm (press release)
  • Inergy Midstream (NRGM) and Enserco Midstream announce joint venture to operate crude oil rail terminal in Wyoming (press release)
    • Facility is located in Douglas County, Wyoming in the Powder River Basin play
    • NRGM and Enserco Midstream each own 50% interest in the owner of the Douglas Facility
    • Unit train service expected to begin during 1Q 2014, after which capacity will be expanded to 20,000 bbls/d, further expandable to up to 60,000 bbls/d
  • PVR Partners (PVR) announces agreement to provide midstream services in the Utica Shale for Hess Corp, and expects to construct facilities to support the agreement for $125-150mm over next 3 years (press release)
  • NGL Energy (NGL) announces acquisition of water disposal business of Coast Plains Disposal #1, LLC for 222,381 common units and $109.5mm in cash (approximately $116.4mm total purchase price) (press release)
    • NGL to purchase water disposal business of Coast Plains Disposal #1, LLC
    • Combination cash ($109.5mm) and stock transaction (222,381 NGL units)
    • The acquisition adds 3 high capacity water disposal  and an option on a 4th facility under development, and options to acquire 2 additional strategically located permitted locations
Category MLP Market Post