Category Archives: MLP Market Post
Mar 22nd, 2015
MLP Market Post
MLPs stopped issuing equity, the Dollar faltered, oil and gas prices bounced, interest rates collapsed, the heavens parted…and that’s all it took for MLPs to finally trade up this week. The Alerian MLP Index rose 1.7%, well ahead of the Alerian MLP Equal Weight version, indicating strength in larger MLPs, something we haven’t seen much of this year. MLPs trailed the S&P 500 (+2.7%) and Utilities (+3.8%), but green is green, so no complaints.
Oil prices have bounced off their fresh lows hit on Tuesday, helped by broader macro factors that held back the Dollar this week. Oil inventories had another large build this week, so the oil price bounce still feels shaky.
After 5 equity offerings last week, there was not a single offering this week, and very little deal-making to speak of this week. And why would there be deals? Every school in the greater Houston area, it seems, was on Spring Break this week. Public schools in Memorial (Spring Branch ISD), West University (HISD), the Woodlands, plus private schools St. John’s, Kincaid and Episcopal were all off. Many MLPs are based in Houston, but a greater percentage of the bankers and lawyers that service them are located there. I expect they’ll get back to the work of deal making and accessing capital markets next week.
I was in Calgary this week (not for Spring Break). I heard a few times about a slightly different break in the spring, called spring breakup. Particular to Canada, spring breakup happens each year when roads are soft from frost melting and heavy equipment can’t travel on those roads, leading to less production activity for a month or so.
Maybe this week’s positive MLP price action represents some kind of thawing of the frost surrounding MLPs. Or maybe it’s just a pause on a path lower for MLPs, because risk-on forces were too soft to let anything heavy weigh on MLPs this week.
Winners & Losers
Marine MLPs led the way this week, with TOO and GMLP having strong weeks. TOO’s performance was the result of first oil on the Knarr development and TK’s floating production storage and offloading connected to it. TOO is expected to buy the FPSO from TK at some point in the first half of 2015. In the oil beta category, DPM showed signs of life, while HCLP traded up with commodity prices.
Even in a positive week, there was a wide range of returns this week. Oil’s bounce didn’t help the 3 upstream MLPs that made the bottom five this week, 2 of which were repeats from the bottom 5 last week.
The top 5 year to date continues to be dominated by small-cap, non MLP Index names. The bottom 5 continues to be dominated by commodity exposed MLPs, like EVEP, ARP and ARLP, as you would expect.
TOO climbed out of the bottom 5 with its big week. MMLP climbed back near the top of the sector. CPLP broke into the top 5, presumably on the news that it will be joining the Alerian MLP Index.
News of the (MLP) World
- Black Stone Minerals, L.P. (BSM) files initial registration statement for an MLP IPO to raise up to $100mm in gross proceeds (filing)
- BSM is one of the largest owners of oil & natural gas mineral interests in the U.S.
- BSM owns mineral interests in approximately 14.5mm acres, with an average 48.1% ownership interest in that acreage
- No IDRs
M&A / Growth Projects
- Magellan Midstream (MMP) announced that Anadarko Petroleum (APC) has exercised its option to acquire 20% of the Saddlehorn pipeline project (press release)
- The project will be owned 20% by APC, 40% by MMP and 40% by PAA
- Saddlehorn is a 550-mile pipeline project that will transport oil from the DJ Basin to storage facilities in Cushing, OK expected to cost $800-850mm to construct
- APC is the parent of Western Gas Partners (WES)
- Howard Energy Partners, private midstream company partially owned by EnLink Midstream (31%) and Alinda Capital (59%), announced $500mm acquisition from Southwestern Energy (press release)
- Howard will acquire natural gas gathering assets in northeast Pennsylvania, including 100 miles of gathering pipeline with 600 mmcf/d of capacity and 53,000 horsepower of compression
- Howard plans to construct a new natural gas gathering system in Tioga County, PA that will add up to 380 mmcf/d of capacity
- Williams Partners (WPZ) received FERC approval for one project (press release), announced FERC application for another (press release)
- Buckeye (BPL) announced open season for Cross Town Pipeline (press release)
- Foresight Energy (FELP) announced that Murray Energy Corporation will acquire a controlling stake in FELP’s general partner (press release)
- Murray will pay $1.4bn to acquire (1) an 80% interest in FELP’s GP, with 77.5% interest in the IDRs, (2) approximately 50% of the L.P. interest in FELP, and (3) access to other coal handling, transportation and transloading facilities
- Murray has 12 coal mines and $713mm of 2014 EBITDA, some of which may be dropped down over time to FELP
- Founder of FELP will retain 22.5% of FELP’s GP and 35% interest in FELP directly
Mar 14th, 2015
MLP Market Post
MLPs sold off sharply this week, trading down 4 out of the 5 days. The Alerian MLP Index (AMZ) closed down 4.3% for the week, and is down 8.1% over the last 3 weeks. Lower oil prices were the primary driver of the sell off this week, and despite a much lower inventory build this week, oil storage building is the primary concern within the sector right now.
Piling on top of those fundamental issues were 5 equity offerings for nearly $2bn worth of new MLP paper that was not easily absorbed this week. There is not much to get excited about after the last three weeks, although there probably won’t be 5 equity offerings next week, so there is that. With earnings season in the rearview mirror, expect commodity prices to dominate price action in the near-term, with M&A as the only potential slump-buster for now.
The S&P 500 declined -0.9%, while utilities outperformed (+0.3%) on lower interest rates week over week. Oil price declined 9.2% in the spot market week over week, making it 4 straight negative weeks for oil prices. A strong dollar and seasonally weak refinery demand leading to inventory builds have the biggest contributors to negative sentiment. Natural gas prices reversed gains from last week, down 6.6% in the spot market.
Since oil prices climbed above $50/bbl a few weeks ago, there has been a rush to raise capital across the energy sector (beyond just MLPs). Total equity raised by U.S. energy companies so far this year has been more than $10.0bn already ($6.3bn from E&P corporations, $3.7bn by MLPs). That new supply of equity, combined with lower commodity prices has sent MLPs lower.
Winners & Losers
No trends on the upside this week, except that each of the top 5 did not issue equity this week. FISH led all MLPs On the downside, commodity price sensitivity was the prevailing theme. All 5 were upstream focused MLPs, 4 E&P and 1 oilfield services.
There was no real consistency week over week, as shown below. BBEP went from top 5 to bottom 5, but no other recurring names.
Year to date MLPs have declined 7.7%, but there are a few that have escaped the vortex of falling oil prices. None of the top five MLPs are in the Alerian MLP Index, and they are generally more thinly traded than other MLPs, which I think helped push a few of them lower than most MLPs in 4Q 2014, so when things first stabilized back in mid-January, they bounced hard. Upstream MLPs bounced hard in January as well on oil price optimism, but have collapsed with oil the last few weeks, such that several of them are now among the bottom 5. 4 of the bottom 5 are in the Alerian MLP Index (for now).
Recent volatility is highlighted in the below chart that shows week over week changes in the YTD winners and losers. EVEP and TOO remain at the bottom, but SDLP and ARP dropped in the bottom five this week. On the positive side, CLMT and MEMP dropped out of the top 5, FISH and CELP jumped into the top 5, while MMLP went from first overall down to fifth.
News of the (MLP) World
In a continuing theme over the last few weeks, MLPs are rushing to get equity deals done while they can, as the general consensus is that oil prices will be lower in the near-term, given storage builds. There were 5 equity offerings by MLPs for total gross proceeds of more than $1.9bn, bringing the total equity issued by MLPs through public offerings to $3.9bn in the last month.
Only one of the five offerings this week was accompanied by an acquisition announcement, proceeds from the remainder of the offerings will be used to fund previously announced 2015 capital expenditures related to development projects, which made after-market trading pretty sloppy.
- EQT Midstream (EQM) priced public offering of 8.25mm common units at $76.00/unit, raising $627.0mm in gross proceeds (press release)
- One day marketed offering, with a file-to-price decline of 5.54%
- Proceeds to be used to partially fund drop-down acquisition announced this week
- Sunoco Logistics (SXL) priced public offering of 13.5mm at $41.76/unit, raising $563.8mm in gross proceeds (press release)
- Overnight offering, priced at 3.24% discount to prior closing price
- SXL traded down another 4.0% from pricing in the next session
- Calumet Specialty Products (CLMT) priced public offering of 6.0mm units at $26.75/unit, raising $160.5mm in gross proceeds (press release)
- Overnight offering, priced at 3.9% discount to prior closing price
- Enbridge Energy Partners (EEP) priced public offering of 8.0mm common units at $36.70/unit, raising $293.6mm in gross proceeds (press release)
- Overnight offering, priced at 3.2% discount to prior closing price
- Targa Resources Corp (TRGP) priced public offering of 3.25mm shares at $91.00/share, raising $295.8mm in gross proceeds (press release)
- Overnight offering, priced at 3.6% discount to prior closing price
- Traded up 0.2% from pricing on a negative day for MLPs
- Western Gas Partners (WES) filed updated equity distribution agreement to sell up to $500mm of equity at-the-market (filing)
- Crestwood Midstream (CMLP) priced $700mm of 6.25% senior notes due 2023 (press release)
- CMLP will use the proceeds to redeem all outstanding 7.75% senior notes due 2019 and to pay down borrowings outstanding on its revolving credit facility
M&A / Growth Projects
- EQT Midstream (EQM) announced a $1.05bn acquisition of natural gas gathering pipeline assets from its sponsor EQT Corp (press release)
- EQM is acquiring the Northern West Virginia Marcellus Gathering System, which gathers natural gas production in the Marcellus Shale, and a 30-mile natural gas pipeline that connects the gathering system to a major processing hub
- As part of the transaction, EQM entered into a 10-year contract with EQT that eliminates volume and commodity price exposure
- Alerian announced quarterly rebalancing (press release), removing 3 upstream MLPs from the Alerian MLP Index, and adding the following MLPs:
- Summit Midstream Partners (SMLP)
- Capital Products Partners (CPLP)
- Sunoco LP (SUN)
Mar 7th, 2015
MLP Market Post
MLPs were volatile this week, trading in a different direction each of the five trading days. Down Monday, up Tuesday, down Wednesday, up Thursday, and down Friday. The price action reflects commodity price uncertainty that is leading to growth capex uncertainty. Growth capex has been the principal driver of distribution growth the last few years (outside of the drop down set of MLPs). The Alerian MLP Index (AMZ) traded down 2.5% for the week, and is down 3.9% over the last 2 weeks.
The S&P 500 (-1.6%) and utilities (-4.3%) were each lower this week for a second consecutive week. Oil price was flat this week, although it trended lower in the final two sessions of the week (-3.7% during that time). Natural gas prices recovered this week, but remains below $3.00 in the near-term futures market. NGLs fell back after rallying the last few weeks. The 10-year U.S. treasury rate rose 25 basis points this week, which didn’t help MLPs or utilities, and seemed to have a strong effect on the top tier growth MLPs on Friday.
Oil Storage Threat Level Rising
Prominent MLP management teams, sell-side research analysts, commodity consultants and even the Wall Street Journal (see here) are all discussing the level of storage in the Cushing, the U.S. overall and the world. The idea is that if we keep adding oil to storage, eventually we will run out of oil storage, leading to another leg down in oil prices.
Running out of storage has quickly become a consensus opinion, but the oil price has not yet collapsed, which indicates that there is a clear chance that we don’t reach capacity. The storage issues is a complicated triangulation between capacity limits, supply that is trying to slow down (but not fast enough), and demand growth (refinery downtime and strikes not helping).
Below is a snapshot of the U.S. storage picture as we sit today. If we continue to build storage at the same rate we’ve built the last three weeks, the U.S. will run out of capacity in 9 weeks, or early May.
Some caveats are necessary, however. One, the capacity listed on this chart is as of 9/30 per EIA.gov. This data gets updated every 6 months, and in the 6 months prior to 9/30, the U.S. added 13 mmbbls of storage, including around 3 mmbbls in Cushing and around 8 mmbbls on the Gulf Coast. So, there is probably some additional storage that has come online since 9/30, which may add a week or two to the countdown. Also, now that pipeline capacity has been built out between storage hubs, any one area of the overall U.S. storage picture (e.g. Cushing) is less important than it once was. Finally, in each of the last 5 years, during the 9 week period we are entering now, there has been at least one week where there was a draw (rather than a build) in oil from storage. So, it’s unlikely that the current pace of storage builds will continue for the next 9 weeks.
Winners & Losers
MMLP took the top spot for the week, as the market continues to gain comfort around MMLP’s distribution, which was oddly in question the last few months (at least based on their 11%+ yield at some point). SXE’s earnings this week struck a positive chord with investors. NGL led all MLPs to the downside, after it piled onto itself with an equity deal at the end of an already bad week of trading.
CNNX made the bottom 5 for the second straight week, as investors continue to vote with their feet after 2015 guidance redefined top tier distribution growth as sub 20%. No repeats among the top 5, as it continues to be difficult to maintain price momentum in this market.
For the year so far, MLPs that at some late last year had their distribution sustainability questions are leading the way to the upside. MMLP wasn’t even in the top 5 last week, but finds itself sitting atop of the sector at this point.
CNNX’s fall the last two weeks put it into the bottom 5 for the year overall. DPM’s fall from investment grade has landed it in the bottom five as well. SXE and CAPL popped out of the bottom 5 this week.
Light news week, but we had a second consecutive week of an MLP doing an equity deal without a clear transaction to use the proceeds for. The offerings help lockup financing for 2015 capex, but doing so now after the selloff the last few months speaks to the bearishness of MLP management teams on the outlook for a sustained rally in MLPs.
- NGL Energy (NGL) priced public offering of 6.25mm units at $27.57/unit, raising $172.3mm in gross proceeds (press release)
- Overnight bought deal transaction, priced at 4.9% discount to prior closing price
- Proceeds to be used to repay revolver borrowings and to fund capex
- Energy Transfer (ETP) priced $2.5bn of senior notes, including (press release):
- $1.0bn of 4.05% senior notes due 2025 at 99.918% of par
- $500mm of 4.9% senior notes due 2035 at 99.81% of par
- $1.0bn of 5.15% senior notes due 2045 at 99.772% of par
M&A / Growth Projects
- NGL Energy (NGL) announced acquisition of 3 saltwater disposal wells (8-K filing)
- Consideration of 1.3mm common units issued to seller, implying approximately $37mm purchase price
- Western Gas (WES) announced IOU acquisition of 50% interest in the Delaware Basin JV gathering system from Anadarko (press release)
- WES will pay nothing at closing, but has written an IOU to Anadarko whereby they agree to make a payment in 2020 equal to 8x the average EBITDA from 2018 and 2019 (purchase price expected to be $283mm)
- WES expects to receive $15-25mm EBITDA from this acquisition in 2015
- Creative structure enables WES to maintain its 15% distribution growth target for 2015, and highlights the value of a truly supportive sponsor
- TEP closed acquisition and announced recommendation to board of 15% distribution growth over the next 2 quarters (press release)