MLP Market Update
Commentary on Master Limited Partnerships

Category Archives: MLP Market Post

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Published
Aug 31st, 2014

Category:
MLP Market Post

Week Thoughts: MLPs in Mid-Season Form

The MLP Index was up each day this week, and 2.3% overall, capping a record-setting August with a fourth straight positive week.  In total, the MLP Index produced 8.1% total return in August, the best August on record for the MLP Index.  This came after the worst July ever for the index at -3.6%.  In case the extremes continue into September, the worst September ever was 2008 (-17.2%), while the best was 2000 (+9.1%), FYI.

Weekly MLP Review_8-29-14

MLP returns were well ahead of the S&P 500 (+0.7%) and utilities (+1.7%) this week.  Commodity prices recovered across the board, with oil up 2.4% and natural gas front month futures breaking through $4.00/mcf (+5.0% week over week).

The MLP Index yield hit a fresh all-time low of 5.14% on Friday.  With the US 10 year down to 2.34%, the MLP Index spread is 280 basis points, much wider than the all-time low spread of 42 basis points (on 7/15/07), but inside of the 15 year average of 320 basis points.

With the NFL (and fantasy football) season kicking off this week, we are likely to hear at least one announcer use the phrase “mid-season form” to describe a player or team that performs well this week.  That phrase came to mind when thinking about recent MLP dealmaking and price performance as we head into the fall capital markets season.

It will be interesting to see if we look back on this recent outperformance as MLPs “peaking too soon”, to borrow another sports phrase.  The MLP Index made a new all-time peak value each of the 5 days this week, bringing the total to 49 new peak days this year, compared with 40 for all of last year.

Big Months

Since 2001, there have only been 6 months of performance higher than 8.1%, and 4 of those came in 2009.  The next month’s return following such massive months are mixed, but 3 of the last 4 occurrences saw negative returns in the following month.  The last 3 times the index was up 8.1%+ in a month, it happened in the month prior to distribution payments (which is historically strong) and the next months are typically weak. This time is different, coming ahead of a seasonally strong month (September).  So, while you would expect some kind of let down following such strength, we are entering a time period that the last 5 years has seen strength relative to the summer months.

Big Months

Winners & Losers

The analyst quiet period ended this week for VTTI and RIGP, and analysts’ positive commentary sent those stock much higher this week.  Other than that, there was little news that showed up on the top 5 and bottom 5 this week.  DKL saw some selling after its 15.4% week last week, but DKL still finished with a remarkable 26.6% total return in August.  As shown below, that was only the 3rd best total return in the sector in August.

Top5Bottom5_8-29-14

Top5Bottom5_8-29-14_chart

Incredibly, KMP’s 19% return for the month put it 7th on the list of MLP total returns for the month, behind all 5 of the names below, and GSJK as well.  If you remove KMP and EPB from the Alerian Index and run the weighted average return of what’s left (based on the Alerian weights), you get 6.9%.  So, KMP and EPB added 1.2% to the MLP Index return this month.  A simple average of August returns for all  MLPs I track excluding KMP and EPB (93 MLPs) is 7.2%, compared with 7.5% with them.  Basically any way you slice it, MLPs had an amazing month.

Upstream MLPs MCEP, EROC and VNR made the bottom 5 for the month, which was likely the result of weak natural gas prices in August.

Top5Bottom5_August_2014

Top5Bottom5_August_2014_chart

Year to date, EQM broke back into the top 5 this week, displacing GLOP.  On the downside, CMLP’s strength this week moved it out of the bottom 5, with MMLP taking its place.  Of note, variable distribution MLP EMES has seen total return of around 225% so far this year.  I don’t put variable distribution MLPs on these charts, because they tend to be more volatile than the traditional MLPs with MQDs.

Top5Bottom5_8-29-14_YTD

Top5Bottom5_8-29-14_YTD_chart

News of the (MLP) World

There were no new M&A deals announced in the MLP space this week, although there were two additional MLPs added to the queue of filed IPOs.

News-of-the-World

Equity

  • USD Partners LP (USDP) files S-1 to raise up to $150mm of gross proceeds in an MLP IPO (filing)
    • USDP was formed by US Development Group, LLC to develop, acquire and operate energy-related rail terminals
    • Initial assets consist primarily of an origination crude-by-rail terminal in Hardisty, Canada and two destination unit train-capable ethanol rail terminals in San Antonio, TX and West Colton, CA
    • Projected next 12 months EBITDA of $38.7mm, with the Hardisty terminal accounting for more than 90% of EBITDA
    • Has full IDRs with a top tier of 50%
  • Cone Midstream Partners (CNNX) files S-1 to raise up to $350mm in an MLP IPO (filing)
    • CNNX was formed by CONSOL Energy, Inc. and Noble Energy, Inc.
    • Initial assets include gathering assets supporting production of both sponsor entities, supported by fee-based, 20 year contracts covering 100% of revenue
    • Next 12 months EBITDA for CNNX is projected to be $67.4mm
    • Has full IDRs with a top tier of 50%
  • Western Gas (WES) files S-3 to register up to $500mm of common units (filing)
  • Atlas Resource (ARP) files equity distribution agreement to sell up to $100mm of common units at-the-market (filing)
  • Boardwalk Pipeline (BWP) priced a large block trade of 1.1mm units at $19.75/unit, according to Factset, raising $21.7mm

M&A / Growth

  • Kinder Morgan (KMI) announces receipt of early termination of the waiting period under the Hart Scott Rodino Anti-Trust Act for its acquisition of KMP and EPB (press release)
    • Given the common control of all of these entities under the KMI umbrella, this isn’t a surprising announcement, the voting process is the much bigger and longer lead-time hurdle to the $70bn deal closing

Other:

  • The Department of Treasury and the IRS issued its 2014-2015 Priority Guidance Plan that provides a list of intended goals for the entities over the next 12 months (PDF here)
    • On pages 21-22, the document discussing publicly-traded partnership and indicates the intention of these government bodies to address the pause in private letter ruling issuance with formal guidance
    • Questions remains as to what the form and the timing of the guidance will be, but its on the to do list
  • Constellation Energy Partners LLC (CEP) announces board approval of a plan to convert to a limited partnership called Sanchez Production Partners (press release)
    • The general partner of the new MLP will be owned by Sanchez Oil & Gas (NYSE: SOG)
    • The proposed conversion will require unitholder approval as well

Published
Aug 24th, 2014

Category:
MLP Market Post

Week Thoughts: MLPs Up Despite Heavy Price for Light Oil

MLPs (+0.5%) followed the broad market (S&P 500 +1.7%) higher this week.  The MLP Index was down on Friday, breaking a 6 day winning streak, and marking just the 2nd negative day in the last 10 trading days, over which time the index rose 6.4%.   MLP Index returns were held back by some deal hangover weakness in EPB (-2.1%) and KMP (-1.6%).

Weekly MLP Review_8-22-14

Energy commodity prices continue to be under pressure.  WTI Oil futures price dropped below $95/barrel this week, and is now down around 11% since this time last year.  Natural gas price was higher week over week, but remains significantly lower than the polar vortex-induced heights it reached earlier in 2014.  The light end of the NGL barrel was split: ethane followed natural gas higher and propane followed oil lower.

After a weekend that has involved 20 hours of driving with 3 kids and a mini-van (plus 3 Kindles, 2 Nintendo DS’s, and an iPad), I’m going to keep the poetic waxing to a minimum this week in an effort to recharge the verbosity for a week with more MLP action.

Winners & Losers

Small-cap crude and refined products logistics MLPs DKL and WNRL led the sector higher.  DKL was the beneficiary of an analyst upgrade and other positive research notes this week, after very strong 2Q earnings a few weeks ago.  WNRL seemed to rise in sympathy as a fellow small cap growth MLP.  Each of these two MLPs is expected to grow distributions 10-15% per year over the next few years, but neither has the massive pool of drop down assets that are driving expectations of 20%+ distribution growth for MPLX, PSXP and VLP.  The valuation gap between those two groups narrowed this week.

On the downside, LGP and MMLP were down this week after very strong price action the last few weeks following M&A announcements.  No actual news from any of the top or bottom 5 this week.

Top5Bottom5_8-22-14

Top5Bottom5_8-22-14_chart

Year to date, CMLP caught a bid this week (+5.3%) and edged closer to escaping the bottom 5.  OILT dropped out of the top 5, replaced by GLOP.

Top5Bottom5_8-22-14_YTD

Top5Bottom5_8-22-14_YTD_chart

News of the (MLP) World

The second half of August is largely paperwork catchup time for the MLP capital markets.  Last week, we saw 3 recent IPOs file new S-1s to sell equity at some later date.  This week we saw similar filing activity, but little actual capital markets activity.

News-of-the-World

Equity

  • Tesoro Logistics (TLLP) prices 2.1mm unit offering at $68.57/unit, raising $144mm of gross proceeds (press release)
    • Overnight bought deal, priced at 2.8% discount to prior closing price
  • Plains All American Pipeline (PAA) files equity distribution agreement to sell up $900mm worth of common units at the market (filing)
    • 21 underwriters participating, which is a lot
  • NGL Energy (NGL) files S-3 to register up to $300mm of common units (filing)
  • ONEOK Partners (OKS) files S-3 to register up to $650mm of common units (filing)
  • Martin Midstream (MMLP) announces $45mm sale of common units to sponsor Martin Resource Management (press release)
    • With this purchase, Martin Resource now owns 19.7% of the outstanding units of MMLP
    • Funds to be used to reduce borrowings on MMLP’s revolving credit facility that were drawn on to fund the acquisition of additional interests in Cardinal Gas Storage announced last week

M&A / Growth

  • Plains All American Pipeline (PAA) announces plan to construct crude oil pipeline from Cushing, OK to Valero refinery in Memphis (press release)
    • PAA’s new Diamond Pipeline will have capacity of 200,000 bbls/d
    • The pipeline is expected to cost $900mm and to be completed by late 2016, and is supported by a long-term contract with Valero
    • Valero will retain the option to buy into a 50% stake in the pipeline, and can exercise that option any time before January 2016
  • Natural Resource Partners (NRP) announces $205mm acquisition of VantaCore Partners (press release)
    • VantaCore is a privately-held partnership specializing in construction materials
    • VantaCore owns and operates three hard rock quarries, six sand and gravel plants, two asphalt and a marine terminal
    • NRP expects VantaCore to $25mm in EBITDA over the next 12 months (8.2x multiple)
    • VantaCore was owned by Trilantic Capital Partners, Kayne Anderson Energy Development, Hartz Alternative Investments and Corridor Private Holdings
  • EnLink Midstream Partners (ENLK) announces $250mm condensate pipeline project in the Utica (press release)
    • ENLK will construct a new 45-mile, eight-inch condensate pipeline and 6 natural gas compression and condensate stabilization facilities
    • Project is supported by a long-term, fee-based agreement with Eclipse Resources for compression and stabilization services and for the purchase of stabilized condensate

Other:

  • Enterprise Products Partners (EPD) completed its previously announced 2-1 stock split
    • It was EPD’s second stock split since going public in 1998, with the first occurring in 2002

Published
Aug 17th, 2014

Category:
MLP Market Post

Week Thoughts: Rising Boat Lifts MLP Tide

Kinder Morgan’s big Sunday announcement sent MLPs into a tizzy, read more about the deal here.  The MLP Index was up 5.3% this week, with much of that attributable to just 2 MLPs (EPB and KMP) that make up more than 10% of the Alerian MLP Index.  5%+ weeks are very rare.  There was a period of 6 years from 2002 to 2008 that the MLP Index had no such weeks.  This was only the 4th such week for the Index in the last 5 years.

Yield on the U.S. 10 year rates crossed back over the 2.40% threshold again, stocks are up, and MLP consolidation is driving speculation among smaller MLPs.  All is right for MLPs…except for weakening energy commodity prices.  The U.S. is clearly having an impact on the global supply picture when an aggressive Russia and (that old standby) tension in the Middle East don’t stop oil prices from falling.

Weekly MLP Review_8-15-14

Updated Distribution Aristocrats

A few years ago, I published my list of MLP Distribution Aristocrats (see original post here).  As part of my work on KMP this week, I updated the list.  MLP “Distribution Aristocrats” are MLPs that have raised their distribution in each of the last 10 years.  To qualify, the MLP also needs to have been trading for 10 years.  There are only 10 MLPs that meet both criteria.  After KMP goes away, there will only be 9, but as more MLPs reach the 10 year trading mark, the list will grow.

Distributin Aristocrats

Winners & Losers

EPB led all MLPs with a 27.7% pop earlier this week.  The unitholders that held on even after EPB announced earlier this year its intention to have no distribution growth until 2017 were handsomely rewarded with a white knight.  No matter that the savior (KMI) was the company that was responsible for EPB’s slowing growth rate since the 2012 purchase of EPB’s GP.

MMLP also had a nice pop related to an acquisition this week, up 12.0%, after a bottom 5 showing last week.  Speaking of the bottom 5, HCLP was down after issuing equity this week, and after being up 8.0% last week.  Also, there were 2 upstream MLPs in the bottom 5, perhaps taking cues from weaker commodity prices.  Growth is back en vogue as low yield, high growth MLPs were up sharply this week, epitomized by PSXP’s big gains.

Top5Bottom5_8-15-14

 

Top5Bottom5_8-15-14_chart

Year to date, PSXP is still out in front, although SUSP jumped HCLP to take second place.  MMLP climbed out of the bottom 5 this week, replaced by recent coal IPO FELP.  CMLP had a positive week, but remains in the bottom 5, until its white knight appears.

Top5Bottom5_8-15-14_YTD

 

Top5Bottom5_8-15-14_YTD_chart

News of the (MLP) World

There were a few interesting deals outside of the Kinder Complex this week, including a series of equity deals and announcements.  It was a flurry of capital markets activity that I don’t expect we’ll see again until after Labor Day, although there’s always time for M&A.

News-of-the-World

Equity

  • Buckeye Partners (BPL) priced public offering of 2.6mm common units at $76.60/unit, raising $199.2mm in gross proceeds (press release)
    • Overnight offering, priced at 2.6% discount to prior close
  • Hi-Crush Partners (HCLP) priced 100% secondary offering of 3.3mm common units at $62.91/unit, raising $205.1mm in gross proceeds to selling unitholder Hi-Crush Proppants, LLC (press release)
    • Overnight offering, priced at 4.2% discount to prior close
  • Viper Energy Partners (VNOM) files S-1 to sell 3.5mm common units in an equity offering (filing)
    • VNOM also disclosed an acquisition of Permian acreage for $90mm in cash
  • Cheniere Energy Partners LP Holdings (CQH) files S-1 to sell 10.1mm common shares in an equity offering (filing)
  • GasLog Partners (GLOP) files F-1 to sell up to $125mm of common units in an equity offering (filing)
  • Rice Energy announces plans to form a midstream MLP for its gas gathering and water sourcing assets (press release)

M&A / Growth

  • Kinder Morgan, Inc. (KMI) to acquire KMP, KMR and EPB
    • Click here to peruse around 2,000 words on this deal
  • MMLP acquisition of remaining interest in Cardinal Gas Storage for $120mm (press release)
    • MMLP to acquire 57.8% interest owned by Energy Capital Partners
    • Accretive to distributions by $0.15/L.P. unit by end of 2015, and MMLP expects to increase distribution by $0.02/unit in 4Q14
    • Transaction increases MMLP’s coverage to above 1.05x
    • Over 90% of working gas storage capacity contracted with 5 year weighted average contract life
    • Improves fee-based contract mix and reduces seasonality
  • GLOP $328mm acquisition of two vessels (press release)
    • Vessels have 5.5 and 6 years remaining on contracts
    • Acquisition value represents 9.5x next 12 months EBITDA
    • Announced intent to raise distributions by 15%