Week Thoughts: MLPs Tapered Up

MLPs bounced back this week after two sharply negative weeks in a row.  Most of that bounce happened Friday, when the Alerian MLP Index increased 1.2%, the biggest one day move since mid-November.  The index was up 1.5% for the whole week, while the Alerian MLP Equal Weight Index was up 2.0%, implying lagging returns from the larger cap names on average.  The S&P 500 was up 2.4%, which means MLPs trailed the market this week, as they have for most of the year.

Weekly MLP Review_12-20-13

Interest rates didn’t change much week over week, despite the announcement that the fed will taper its bond purchases starting in February by $10bn.  The taper announcement on Wednesday was the turning point for MLPs and stocks.  As shown in the chart below, the Alerian MLP Index pivoted around mid-day (when the taper plan was announced) on Wednesday and shot higher Thursday and Friday.

AMZ Week Chart

Natural gas and oil were both all up this week, which is generally speaking a good thing for energy stocks and for MLPs, although flat and declining prices for ethane and propane, respectively, don’t help processing margins.  Natural gas prices were helped by the largest natural gas storage withdrawal of all time reported by the EIA this week (Bloomberg).

We here at CBRE Clarion wish all of you readers a healthy, warm holiday season, followed by a prosperous New Year.  We’ll publish shorter posts the next two weeks with primarily charts, assuming nothing crazy happens next week.  Also look for our review of the MLP prop bets for 2013, review last year’s lines and see how you did here, compared with my expectations.

Winners & Losers

Small cap high beta names AMID, RNO and CPLP led the sector higher this week.  PSXP was probably the highest profile among the top five, and it’s 8.2% performance this week puts it up 56.8% since its July IPO.  PSXP is now yielding 2.4%.  Another refined products MLP (DKL) led the sector lower this week with a 3.0% decline.  MWE was second worst with a 2.8% drop for the week, but did finish slightly higher than that of the equity offering it slipped in this week.  

Top5Bottom5_12-20-13

Outside of the traditionally structured MLPs, variable distribution MLP EMES was up 13.6% this week, which helped drive average variable distribution MLP returns up this week by 1.9%.  Also the MLP general partners holding companies were up on average 3.1%, with the biggest and hairiest  (WMB +8.0% and KMI +7.3%) up the most.

Just one change on the YTD chart week over week, with AMID replacing PSE in the #2 slot.  RNO’s big week puts it very close to graduating off this chart entirely, but for now it remains the 5th worst performing MLP this year.

Top5Bottom5_12-20-13_YTD

News of the (MLP) World

There was a surprising amount of news this week for this time of year.  It was almost as if someone at KMP left the press release printer on and left for the holidays (KMP had press releases for 6 separate growth projects this week).  The slew of MLP growth projects with in-service dates of 2015-2018 are becoming harder to keep track of and are starting to seem like just noise on some level…

News-of-the-World

Equity

  • Markwest Energy (MWE) prices public offering of 4.75mm common units at $63.40/unit, raising $301.2mm in primary gross proceeds and $15.9mm of sales proceeds for the selling unitholder (press release)
    • As part of the offering, M&R MWE Liberty, LLC sold 250,000 of their common units
    • Offering was marketed overnight, but was sold pursuant to MWE’s existing equity distribution agreement, so I think that makes it a bought deal or really big block trade
    • Priced at 3.0% discount to prior close
    • Traded down 0.7% from pricing in the following trading session
    • Latest (in terms of a date in a given year) follow-on equity offering priced in at least 5 years
  • Teekay Offshore (TOO) announces $53.4mm equity private placement (press release)
    • TOO issues 1.75mm common units in a single institutional investor

M&A / Growth Projects

  • KMP announces plans to build Edmonton crude oil rail terminal in a joint venture with Imperial Oil (IMO) (press release)
    • 50-50 joint ventures between KMP and IMO to build a crude oil rail-loading facility in Strathcona County, Alberta, called the Edmonton Rail Terminal
    • Facility will have 100,000 bbls/d of capacity at startup, potential to expand to 250,000 bbls/d
    • Total construction costs for the rail terminal are expected to be $170mm, and KMP will spend an additional $100mm in pipeline connections and two new staging tanks to be constructed within the KMP Edmonton storage facility
  • Double Eagle Pipeline, a joint venture between Magellan Midstream (MMP) and KMP, announces expansion to support new long-term agreement with Anadarko Petroleum to transport Eagle Ford Shale production
    • KMP to construct 160,000 bbls of storage capacity, a pump station, and a 10-mile pipeline to connect Double Eagle to the KMCC Pipeline
    • Project to cost $45mm to KMP
  • Kinder Morgan Energy (KMP) announces LOI with Nova Chemicals Corp for New Utica to Ontario Pipeline (press release)
    • KMP will develop, construct, own and operate a 210 mile, 10 inch pipeline from multiple frac facilities in Ohio to Cochin pipeline at a cost of $300MM.
      • Initial capacity estimated at 50,000 b/d and expandable to 75,000 b/d
  • KMP and Seneca Resources enter agreement to support Niagara Expansion Project (press release)
    • KMP has signed a 15-year firm transportation agreement with Seneca Resources, the wholly-owned upstream subsidiary of National Fuel Gas, to ship 158,000 dekatherms/day or natural gas to eastern Canadian markets on the Niagara Expansion Project
    • The $29mm Niagara Expansion Project is expected to be in-service 11/1/15
  • KMP announces successful open season on Tennessee Gas Pipeline (press release)
    • Open season for incremental, north-to-south natural gas transportation capacity on the TGP system totaling 500,000 dekatherms/day
    • Expansion capital expansions are expected to total $150mm
  • Kinder Morgan Energy (KMP) and Targa Natural Resources (NGLS) announce plans to form a joint venture to construct new NGL fractionation facilities at Mont Belvieu, TX (press release)
    • New fractionation facilities will support producers in the Utica and Marcellus Shale resource plays in Ohio, West Virginia and Pennsylvania
    • KMP and MWE are jointly developing an NGL pipeline to bring NGLs from the Marcellus and Utica to Mont Belvieu, and this fractionation facility is meant to support that pipeline project and provide shippers with an integrated solution for their NGLs
    • The NGL pipeline JV (MWE/KMP) will extend its open season until 2/28/14
  • Markwest Energy (MWE) JV with Energy & Minerals Group (EMG) that announces agreements with Gulfport Energy for Development of Comprehensive Condensate Solutions in the Utica Shale (press release)
    • MWE and EMG to provide stabilization services and potential gathering services for condensate produced within certain counties in Ohio
    • MWE and EMG will form Ohio Condensate Company, LLC, a new Joint Venture
    • Initial infrastructure development will consist of a new condensate stabilization facility, with associated logistics and Storage terminal capabilities to be constructed in Harrison County, OH and placed in-service by 3Q 2014
    • The facility will serve as the origin for MPLX LP’s previously announced Cornerstone Pipeline, a condensate pipeline project that will terminate near Canton, OH (expected to be in-service by late 2016)
  • Plains All American (PAA) announces $120mm growth project to build Eagle Ford fractionator and related infrastructure expansions (press release)
    • PAA to construct a new NGL fractionator and is expanding its existing condensate stabilization facility in the Eagle Ford area
    • The new fractionator is supported by long-term, third-party commitments and will have a capacity of up to 15,000 bbls/d of NGL Y-grade and off-spec Y-grade product
    • Fractionator and expansions expected to be in-service 2Q 2015
  • NGL Energy (NGL) announces acquisition of natural gas liquid assets from Keyera Energy, Inc. (press release)
    • Assets include: 4 rail to truck propane terminal facilities and related assets with combined propane storage capacity of 640,000 gallons with the ability to throughput up to 100MM gallons annually
  • Sprague Resources (SRLP) announces acquisition of commercial fuels business from Hess (press release)
    • Commercial Fuels business is one of the largest marketers of refined products on the East Coast of the U.S., serving commercial, industrial and government accounts through former Hess terminal locations (recently sold), and third-party facilities.
  • Summit Midstream Partners, LLC, the privately-held general partner and sponsor of Summit Midstream Partners (SMLP), announces acquisition of interests in Utica Shale gathering system from Blackhawk Midstream (press release)
    • Summit expects to eventually drop-down these assets to SMLP
  • RoseRock Midstream (RRMS) announces acquisition of additional interest in White Cliffs Pipeline from sponsor SemGroup Corp. (SEMG) for $275mm (press release)
    • RRMS acquires an additional 33.3% interest in White Cliffs, brining RRMS’s total stake to 67%
    • White Cliffs is a 527-mile common carrier, crude oil pipeline system that originates in Colorado and terminates in Cushing, OK and has current capacity of 76,000 bbls/d
    • The acquisition was financed with $173mm of credit facility borrowings, $54.5mm of equity from issuance of 1.5mm common units to SEMG and $45.4mm of equity from the issuance of 1.25mm Class A units to SEMG
    • The Class A  units don’t receive a distribution and convert to common units on a one for one basis once White Cliffs Pipeline completes its expansion and average monthly volume reaches 125,000 bbls/d
  • El Paso Pipeline (EPB) announces Phase II of liquefaction project at Elba Island LNG Terminal (press release)
    • EPB owns 51% of Elba Liquefaction Company
    • Capacity to be added in Phase II will range from 70 mmcf/d up to 140 mmcf/d
    • Phase II is expected to be in-service in 2017-2018 (Phase I will be in-service in late 2016 or early 2017

Other

  • NuStar Energy (NS) announces CFO Steve Blank to retire in 11 days (press release)
    • This follows the announcement late last month that CEO Curt Anastasio would be retiring at year-end, and that Brad Barron (NS’s general counsel) would take over as CEO
Category MLP Market Post