Week Thoughts: MLPs Win January, Legacy Intact

The MLP Index outperformed the broader stock market this week, trading up 0.6% compared with a 0.4% decline for the S&P 500.  Distribution ex-date season has begun as well, which helped added another 0.6% to the Alerian MLP Index total returns for the week.  It was the third straight week that MLPs were up and the S&P 500 was down, which would be considered positive momentum for MLPs, if you believe momentum exists.  The 10-year U.S. treasury rate declined again this week, and is down 38 basis points year to date to 2.65%.  Natural gas and ethane prices dropped week over week (but remain elevated), while propane and crude oil edged higher.

Weekly MLP Review_1-31-14

January was positive for MLP returns for the 6th straight year, although performance this month was a far cry from last January (+12.6%).  The positive total return month makes 5 straight positive months for the MLP Index, which is nice, but not even close to the longest consecutive positive month streak, 15 straight months of positive returns from October 2002 through December 2003.  Below is an update of where the MLP Index is relative to recent time periods.

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The MLP Index was positive in January while the S&P 500 was down, which has happened in 5 previous January’s since 1996 (the starting point for MLP Index historical data).  Each of the previous 5 times, the MLP Index has finished the year with returns higher than the S&P 500, in some cases much higher.

MLPs Up Stocks Down

The magnitude of the index changes in 2014 most closely resembles that of 2010 (in fact they are almost identical).  That year turned out pretty well for MLPs, but the economy was in a much different position in 2010 than it is now.  In 2010, the Fed fire hose of liquidity was still at full blast (the second round of quantitative easing was announced in November of 2010).

Poll Question

This week’s poll question attempts to take the pulse of the market’s perception of the biggest risk factors that might impact MLP returns in 2014.  My readership is a very educated group of MLP investors, professionals and executives, and I believe their opinion aggregates what they are hearing from investors and amongst themselves.  If the poll question doesn’t sufficiently capture what you hear in the market, please send me an email with a fuller description.

What potential event or circumstance is the biggest risk factor for MLP stock price returns over the next 12 months?

View Results »

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At CBRE Clarion, we recently published a whitepaper (found here) about MLPs and their role in the Energy Renaissance to date and going forward.  We plan to produce similar pieces on MLP topics of interest on a regular basis.  If you have an MLP topic that you think we should cover, send me an email with your suggestion.

Winners & Losers

It was refreshing to see some MLPs moving based on actual, stock-specific news this week.  Big positive movers SXCP, MPLX and ARLP all reported positive 4th quarter results, and SXCP announced a distribution increase that surprised to the upside.  On the downside, EROC issued a press release pre-announcing weaker 4Q results due to severe winter weather and transaction related costs associated with selling the midstream business.  SXE’s equity offering priced down 8.4% from when the offering was announced, but a sharp rally the day after pricing kept it off this week’s bottom 5.

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Year to date, the MLPs in the top five are up on no real surprising news, although ARP’s distribution increase announcement this week helped pop it into the top 5.  3 of the bottom 4 MLPs have had negative announcements this year (NRP, EROC and EPB) and are not expected to grow their distributions in 2014.  CMLP is the outlier, down 7.2% this year, despite having announced distribution guidance that calls for 6% to 10% distribution growth in 2014.

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Enjoy the big game everyone, see you back here next week after a week long discussion about Peyton Manning’s legacy (win or lose).

News of the (MLP) World

News-of-the-World

TransCanada (TRP) passed through another checkpoint on its epic quest for approval of its planned Keystone XL pipeline this week when the State Department’s environmental review of the pipeline plan concluded that it would not have a significant impact on overall greenhouse gases and future oil sands development (see article here at the New York Times).  TRP’s stock price didn’t move much on the news (+1.4% Friday) and was down week over week.  Still several steps to go before TRP completes its quest, and then it has to actually build the pipeline.

Enterprise Products (EPD) announced better than expected 4Q results this week, strong distribution coverage and a generally positive outlook.  Across town, the Kinder Morgan complex held an analyst day this week.  As predicted by my readers a few weeks ago, there was no major announcement that had any meaningful impact on any of the stocks in the family (KMI, KMP, KMR, EPB).  It was announced that EPB is not expected to grow its distribution until at least 2017, which was a mild disappointment based on market expectations.  Earnings season really ramps up next week, expect there to be many questions about the recent rise of commodity prices and their impact on forward results, and about the impact of severe winter weather.

Equity

  • Southcross Energy (SXE) prices public offering of 8.0mm common units at $16.50/unit, raising $132.0mm in gross proceeds (press release)
    • One day marketed offering, with file-to-price decline of 8.4%
    • Closed the next trading session at $17.84/unit, up 8.1% from pricing

M&A / Growth Projects

  • Transmontaigne (TLP) announces a 10-year capacity lease agreement with Magellan Midstream (MMP) covering 100% of capacity of TLP’s terminals in Rogers, Arkansas and Mt. Vernon, Missouri; and its Razorback Pipeline, which runs from Mt. Vernon to Rogers (press release)
    • Agreement replaces existing agreement with Morgan Stanley, which will terminate on 2/28/14
    • No change in annual revenue expected from this new agreement

Other

  • Eagle Rock (EROC) announces that its 4Q results were negatively impacted by severe winter weather in both its Midstream and Upstream businesses
    • Also announced $4.0mm in additional G&A related to execution of agreement providing for the contribution of its Midstream Business
    • EBITDA and distribution coverage in 4Q expected to be “well below” 3Q 2013 levels
    • Management expects liquidity position to improve upon successful execution of organic and acquisition-related growth in its Upstream Business
    • Earnings conference call on 2/27 to discuss actual results

Distributions

  • Increases:
    • SXCP: $0.475, +9.8%
    • SXL: $0.6625, +5.2%
    • MMP: $0.585, +4.9%
    • SDLP: $0.445, +4.1%
    • ACMP: $0.555, +3.7%
    • SUSP: $0.4851, +3.5%
    • ARP: $0.58 quarterly distribution, +3.6% (also announces monthly distributions to start in March)
    • ETE: $0.34625, +3.0%
    • AHGP: $0.8275, +2.5%
    • ARLP: $1.1975, +1.9%
    • WPZ: $0.8925, +1.7%
    • DPM: $0.7325, +1.7%
    • ETP: $0.92, +1.7%
    • RGP: $0.475, +1.1%
    • EXLP: $0.5325, +0.9%
  • Flat:
    • NKA, GMLP, SRLP, APL, NS, NSH, DLNG, ATLS, APU, PVR, LINE, MEMP, EEP, WNRL, MEP (pro-rated)
Category MLP Market Post