Category Archives: MLP Market Post
Apr 12th, 2015
MLP Market Post
MLPs traded positively for the 4th straight week, with the Alerian MLP Index (AMZ) increasing 1.8%. The AMZ is now 5.4% higher than its most recent low on March 16th, and has produced total returns of 6.3% since its 52-week low reached on January 13th. But the index remains 16.4% lower than its peak in August. MLPs were helped by higher commodity prices and limited equity issuance again this week, and MLPs seem to be gaining some traction heading into 1Q 2015 earnings season. MLPs outperformed the S&P 500 (+1.7%) slightly and outperformed utilities (+0.3%) by a wide margin this week.
I’m writing this on “moving day” at the Masters. If stock market performance were a golf tournament, MLPs would be in the middle of the pack vs. other sectors, down 3.1% year to date. MLPs are way ahead of natural gas and utilities, but behind oil prices and way behind REITs and &P 500. The last 4 weeks of positive returns have kept MLPs in contention vs. stocks, but they need to put up some big numbers to move up the leader board.
Oil prices in the spot market finished 5.1% higher than last week, making it 4 straight positive weeks. Oil is now 18.8% higher than its 52-week low reached on March 17th. Oil prices rallied early in the week before falling sharply Wednesday after the latest oil inventory report was released by the EIA that showed U.S. oil in storage rose by 10.9mm barrels to a record level of 482.4mm barrels.
Natural gas price closed at a 52-week low in the U.S. spot market, down 1.6% on the week. Storage levels for natural gas are 10.5% below the 5 year average for this time of the year, but 79% higher than this time last year. So, the natural gas situation is considerably less dire than oil, but not great. The oil rig decline will have a supply impact on natural gas production, given that natural gas production has been supported by associated gas. On the demand side, a cold winter wasn’t enough this year. First LNG is approaching for Cheniere and there will be growth from coal plant retirements at some point, but the market has lost patience.
Winners & Losers
Commodity prices lifted most MLPs this week. Outside of QEPM, there was no company-specific news that flowed through to the top or bottom 5. Falling natural gas prices probably didn’t help FELP and CNNX.
VTTI seemed to be down just because it was up last week, and vice versa for RIGP. Not much follow through.
CCLP had another very good week, maybe helped by management being on the road for a non-deal roadshow following their recent analyst day. No other changes among the top and bottom 5, although CNNX is now the second worst performing MLP of all, remaining in the doghouse following their revised distribution outlook earlier this year.
News of the (MLP) World
News this week was business as usual: equity offerings, acquisition of midstream assets from distressed producer, and a clean-up merger. Distribution announcements began this week, Kinder releases earnings this week, MLPs kick off the week after. Business as usual.
- Genesis Energy (GEL) priced public offering of 4.0mm units at $44.42/unit, raising $177.7mm in gross proceeds (press release)
- Overnight offering, priced at 5.4% discount to prior closing price
- Possibly as a result of the wide discount and the smaller size of the offering, GEL traded well in the aftermarket, finishing the week 3.2% higher than pricing
- Memorial Production (MEMP) priced secondary offering of 4.7mm units at $16.60/unit, raising $78.0mm in gross proceeds for selling unitholder Memorial Resource Development (press release)
- Block trade, priced at 4.4% discount to prior closing price
- 100% secondary offering, no new units issued and no proceeds to MEMP
- Another example of a producer using a secondary sale to shore up their finances (like DVN’s sale of ENLK units)
- Atlas Resource (ARP) priced offering of 255,000 10.75% Class E Cumulative Redeemable Perpetual Preferred Units at $25.00/unit, raising $6.4mm in gross proceeds
M&A / Growth Projects
- Williams Partners (WPZ) announced acquisition of additional interest in Utica East Ohio Midstream from EV Energy (EVEP) for $575mm (press release)
- WPZ’s interest in the midstream JV will increase to 70% following this acquisition
- WMB has agreed to forego $43mm of incentive distribution rights payments over the next 3 years to support the acquisition
- M3 Midstream, which currently owns 30% of Utica East Ohio Midstream, has the option to acquire 8% of the 21% WPZ has agreed to acquire, so WPZ may only acquire 13%
- Tesoro Logistics (TLLP) announced acquisition of remaining outstanding L.P. units of QEP Midstream (QEPM) in a unit-for-unit exchange valued at $392mm (press release)
- QEPM unitholders will receive 0.3088 TLLP common units for each QEPM common unit
- The market reacted positively to the exchange ratio that valued the QEPM units at 8.5% premium to its closing price on 4/6/15
- EPD provided updates on growth projects, including:
- NuStar Energy (NS) announced expansion and extension of agreement with an affiliate of Pemex to transport and store Naptha (press release)
- Agreement in place since 2005 has been renewed and extended an additional 10 years
- NS will expand its storage capabilities by 50,000 barrels to support the agreement, and the related capital expenditures are accretive to cash flow per unit
- Distribution Announcements:
- EPD: $0.375/unit, +1.4% quarter over quarter, +5.6% year over year
- GEL: $0.61/unit, +2.5% quarter over quarter, +10.9% year over year
- PAA: $0.685/unit, +1.5% quarter over quarter, +8.7% year over year
- PAGP: $0.222/unit, +9.4% quarter over quarter, +30.2% year over year
- Pemex considering MLP IPO (per Oro Negro)
Apr 5th, 2015
MLP Market Post
In a holiday shortened week, the Alerian MLP Index (AMZ) traded up 1.0% to make it three straight positive weeks. MLPs seemed to be helped by higher commodity prices and no equity issuance this week. MLPs outperformed the S&P 500 (+0.3%) slightly while underperforming utilities (+1.7%).
Despite the market holiday on Friday, the U.S. jobs report for March showed the lowest amount of job growth in 15 months, which calls into question the strength of the economic recovery and may call into question the Fed’s plan to raise short term interest rates. A weaker recovery in the U.S. doesn’t bode well for much-needed commodity demand, but lower for longer interest rates may steer yield-hungry investors towards high dividend stocks like REITs, utilities and perhaps MLPs.
Oil price finished slightly higher, making it 3 straight positive weeks for oil prices as well. Oil prices rallied Wednesday after data from the EIA showed that oil production declined week over week by 0.4%, the first weekly decline since January. Oil storage continued to build in the U.S. to record levels, but the addition to inventory was less than last week. Natural gas remains volatile week over week, but remains well below $3/mmbtu.
We passed through another month and quarter this week, which gives us an opportunity to take stock in where we are. March saw the MLP Index decline 4.2%, making it 6 negative months out of 7. The index declined 5.2% over the first 3 months of the year, a second consecutive negative quarter. Taken together, the most recent two quarters trail only the second half of 2008 for the worst 6 month stretch in MLP history. In the 5 years that followed, the MLP index produced average annual returns of 29.5%. It’s doubtful that a rally like that is pending, but it is logical to expect some relief at some point.
If investors are seeking relief, history suggest April is the month that offers it. The MLP Index has produced positive returns in April for 10 consecutive years and 15 of the last 17 years. The broader stock market has enjoyed success in April as well, with the S&P 500 averaging +1.3% return in April since 1928, making it the third best month on average. As shown below positive streaks for MLPs are quite rare these days. If April finished negative there will be only one month left with more than 1 year in a row of positive returns.
Winners & Losers
Each of the top 5 represents MLPs that operate fundamentally different assets along the energy value chain, and none of the top 5 announced any company-specific news this week. On the downside, however, negative company-specific news impacted stocks like CELP and SDLP.
No repeats among winners or losers this week, a testament to the lack of follow through and the way MLPs have been trading in fits and starts.
Smaller MLPs continue to dominate the top of the year-to-date performance table. Upstream MLPs dominate the bottom 5.
DLNG dropped out of the top 5, replaced by fellow marine transport MLP CPLP. ARLP climbed out of the bottom 5, replaced by fellow coal MLP NRP.
News of the (MLP) World
With Good Friday, it was a quiet week for MLP press releases. Although there were some interesting drop-downs, and a few new midstream JVs with companies just outside the U.S.
- CNX Coal Resources (CNXC) filed initial registration statement to raise up to $250mm in an MLP IPO (filing)
- Formed to manage and develop all of CONSOL Energy’s thermal coal operations in Pennsylvania
M&A / Growth Projects
- Dominion Midstream (DM) announced acquisition of Dominion Carolina Gas Transmission from sponsor Dominion for $495mm (press release)
- Funded with $200mm of DM units and a two year note to Dominion
- Kinder Morgan (KMI) and Keyera Corp (TSX: KEY) announced plans for a JV to construct a new crude oil terminal in Edmonton (press release)
- The JV owners have entered into long-term, firm take-or-pay contracts with customers to build 4.8mm bbls of crude oil storage at the facility
- KMI’s investment will be CAD$342mm for an initial 12 tank build-out to be completed by 2H 2017
- KMI will invest an additional CAD$69mm outside the JV for connecting pipelines and related infrastructure
- Delek Logistics (DKL) announced acquisition of crude oil logistics assets from sponsor Delek US Holdings (press release)
- The assets, purchased for $61.9mm, include an oil storage tank adjacent to Delek US’s Tyler refinery and rail offloading racks adjacent to Delek US’s El Dorado refinery
- The assets are expected to produce $6.7mm of annual EBITDA (8.2x implied EBITDA multiple)
- ONEOK Partners (OKS) announced pipeline JV with Mexico City-based natural gas Infrastructure company Fermaca to construct export natural gas pipeline to Mexico (press release)
- Pipeline will extend from OKS’s WesTex Transmission pipeline system in Coyanosa, TX to an international border crossing connection at the U.S. and Mexico border where it will connect with Fermaca’s Tarahumara gas pipeline
- The project is expected to cost $450-500mm and to be completed in 3 phases, with the final phase expected in 2019
- Breitburn Energy (BBEP) announced $1bn capital infusion by private equity firm EIG Global Energy Partners (press release)
- Capital consists of $350mm of perpetual convertible preferred equity and $650mm of senior secured notes
- BBEP also announced a further 50% distribution cut
- BBEP will likely be removed from the Alerian MLP Index as a result of this second distribution cut, leaving just 3 E&P MLPs (LGCY, MEMP and LINE)
- Enterprise Products (EPD) announced CEO Michael Creel to retire by at the end of 2015 (press release)
- Creel has been CEO of EPD since 2007, and has held the position for longer than anyone else since EPD’s IPO
- Creel will be replaced by Jim Teague, EPD’s COO, who will be the 5th EPD CEO since its 1998 IPO
- EPD also announced that Randy Fowler will be appointed to new role of Chief Administrative Officer, and Bryan Bulawa will take over as CFO
- Seadrill Partners (SDLP) announced receipt of early termination for West Sirius contract and extends West Capricorn contract (press release)
- SDLP received notice from BP for termination of the contract for the West Sirius, SDLP agreed to lower day rate and decrease term to July 2017
- BP extended West Capricorn lease with SDLP by two years at an increased day rate to make up for the West Sirius cash shortfall through 2017
- SDLP expects no material impact to cash flow over the contract period through 2017
Mar 29th, 2015
MLP Market Post
MLPs finished positive for the second straight week, the first time in 2015 MLPs have been positive for two consecutive weeks. Oil prices increased, helping the Alerian MLP Index (AMZ) finish up 0.3% this week. Large capitalization MLPs traded better on average than smaller MLPs this week. MLPs outperformed both utilities (-2.5%) and the S&P 500 (-2.2%) by a wide margin, an indication of how energy stocks in general are being driven by oil over all other macro forces (absent stock-specific news). This week it was to the benefit of MLPs, and as oil prices continue to recover over time it should be a tailwind for MLPs.
Oil price increased 5.6% in the futures market week over week, a second consecutive positive week. Oil prices rallied Thursday on news of the Saudi-led middle-eastern contingent of countries launching air strikes against rebels in Yemen, increasing tensions among major countries in the Middle East (Saudi Arabia and Iran). The US dollar also showed continued weakness, helping oil prices early in the week. Oil storage continued to build in the U.S., but the focus shifted to geo-politics this week.
It was refreshing to see MLPs play the defensive role this week, but it still feels choppy with question marks on oil storage, equity issuance and growth question marks for some MLPs. East Coast is on Spring Break this week, so I’ll keep it short.
Winners & Losers
Two shipping MLPs led the way this week, along with small cap value names CCLP and USDP. On the downside, each of the bottom five comes from a different MLP subsector, so hard to read much into that. In general, MLPs have traded pretty erratically with individual names trading in opposite directions of their peers on different days.
NMM bounced from worst last week to first this week. FELP did the reverse, falling back after a strong week last week. NSLP made it a second straight week near the bottom of the sector.
CCLP leads the way so far this year, with fellow compression MLP USAC in the top 5 as well. Every MLP in the top 5 besides CCLP declined this week. Upstream MLPs dominate the bottom 5, with 3 E&P MLPs and 1 coal MLP in a tight bunch near the bottom.
News of the (MLP) World
Much more action in the MLP space this week, including private equity alliances, small pipeline JVs, drop downs, and debt deals. Despite all the action, we haven’t yet seen the big M&A come through, at least not since the Hiland deal and the Energy Transfer clean up merger with Regency. PAA, KMI, ETE and others have been vocal about acquisitions, maybe next week some of those deals surface. IPOs are coming as well.
- EnLink Midstream (ENLK) priced secondary offering of 22.8mm common units owned by Devon Energy at $25.71/unit, raising $586.2mm in gross proceeds for Devon (press release)
- Overnight offering, priced at 4.5% discount to prior closing price
- Traded very poorly in the next session, down an additional 4.7% from pricing, or 9.0% overall from prior closing price
- Global Partners (GLP) priced secondary offering of 1.96mm common units at $36.10/unit, raising $70.6mm in gross proceeds for selling unitholders (press release)
- GLP received no proceeds
- Selling unitholders were owners of AE Holdings Corp.
- Overnight offering, priced at 5.6% discount to prior closing price, and traded up 1.1% in the next session
- MPLX filed S-3 to register up to $1.5bn worth of common units (filing)
- Spectra Energy Partners (SEP) filed equity distribution agreement to sell up to $500mm in equity at the market (filing)
- Calumet Specialty Products (CLMT) priced public offering of $325mm of 7.75% senior notes at 99.257% of par (press release)
- Sunoco LP (SUN) priced public offering of $800mm of 6.375% senior notes due 2023 (press release)
M&A / Growth Projects
- Sunoco LP (SUN) announced acquisition of interest in fuel distribution business from Energy Transfer (ETP) for $816mm (press release)
- SUN to acquire 31.6% equity interest in Sunoco, LLC, which distributes ~5.3bn gallons per year of motor fuel across 26 states
- EnLink Midstream (ENLK) announced acquisition of Victoria Express Pipeline and other Eagle Ford assets from Devon Energy for $171mm today, plus $30-40mm in planned development capex (press release)
- Direct acquisition from DVN, as opposed to a drop down from ENLC
- Purchase price represents 10x EBITDA today, 6-8x beyond 2016 including development spend
- Semgroup Corp (SEMG) announced $500mm Maurepas Pipelines project serving refineries in Coastal Louisiana (press release)
- SEMG to build 3 pipelines (1 oil and 2 intermediates) between refineries operated by Motiva
- The project is supported by long-term transportation agreements with Motiva and is expected to be in-service in 4Q 2016
- SEMG expects to develop the pipeline at SEMG and drop down the assets to RRMS at some point in the future
- Linn Energy (LINE) announced $1bn equity commitment from Quantum Energy to form strategic acquisition alliance (press release)
- Quantum were the original backers of LINE, forming the partnership with Mike Linn in 2003, before taking it public in 2006
- Delek Logistics (DKL) and Plains All American announced JV for development of Caddo Pipeline (press release)
- Total pipeline cost: $100mm ($50mm each)
- Joint venture ownership: 50% DKL and 50% PAA, but PAA will operate the pipeline
- Pipeline will be an 80-mile oil pipeline from East Texas to refineries in Louisiana withinitial capacity of 80,000 barrels per day
- DKL’s parent company, Delek US (DK – publicly-traded refinery corporation), will be an anchor shipper on the pipeline
- Delek Logistics (DKL) announced JV with Rangeland for pipeline in West Texas
- Total pipeline cost: $125mm ($41.7mm net to DKL)
- JV ownership: 33% DKL, 67% Rangeland, but Rangeland will operate the pipeline
- RIO pipeline will consist of two terminal facilities and a 12-inch, 107-mile pipeline originating in the Delaware Basin and terminating in Midland, TX with 55,000 barrels per day of initial capacity
- DKL’s parent company, Delek US (DK) will be an anchor shipper on the pipeline
- CrossAmerica Partners (CAPL) announced retirement of founder and CEO Joe Topper (press release)
- Topper will remain in charge until 9/30 to ensure a smooth transition
- CAPL traded down sharply Friday on the news
- Incoming CEO Jeremy Bergeron (CST SVP of Integration and Development currently) was quoted in the press release saying “my family and I are thrilled with the prospect of joining the Allentown (PA) community.”