Category Archives: MLP Market Post

For those of you who don’t care about the ongoing theater of bankers moving from bank to bank, go ahead and skip this post.  Back in September of last year, UBS’s Houston investment banking office was gutted when Stephen Trauber left the firm to join Citi (see here for details of that move in a Wall Street Journal article), for a reported $30mm deal.  Today, almost a full year later, they have made their first big Houston hire in the firm’s effort to rebuild its brand, hiring Rob Pierce from Barclays.

Press release, from Thursday, August 25th:

Today, UBS announced the appointment of Robert Pierce as a Managing Director and Americas Head of Midstream and MLP Investment Banking. Reporting to Tom Langford, Rob will join the firm in November and will be based in our Houston office.

Rob joins UBS from Barclays Capital where he was a Managing Director, focused on the Midstream and MLP space within the Global Natural Resources group. Rob originally joined the New York-based Lehman Brothers Global Natural Resources group in 1998, before moving to Houston in 2004. Prior to his move into investment banking, Rob spent five years as an attorney, focusing on the Energy sector.

The MLP is a significant cross-divisional product for UBS, reaching both our IBD and Wealth Management businesses. Rob’s experience and relationships in the Midstream and MLP space, combined with his extensive knowledge of the Global Energy sector, will be critical to the continued rebuilding of our Global Energy franchise.  (Bloomberg)

Rob was my boss at Lehman Brothers when I worked on the $WPZ and $BWP IPOs.  His legal background really set him apart from other bankers in the MLP space, which is very nuanced in terms of structuring and taxes.  It will be interesting to see how his biggest clients react to the move.  I’m sure $WMB / $WPZ and $EPD, Rob’s biggest clients historically, will follow him to UBS.  Maybe he’ll even bring a few bankers with him, that will play out in the coming months after bonus season, I’m sure.

Rob is simultaneously really really smart and not socially awkward, a rare combination for an investment banker.  He’ll need the full repertoire of skills to rebuild the UBS office.

This week, MLPs acted sort of the opposite of last week.  Last week, MLPs were up on Monday, then down sharply the rest of the week.  This week, as shown below, MLPs were down big Monday, then recovered strongly the rest of the week, to finish up 1.8% for the week.   From Monday’s close to Friday’s MLPs were up 4.3%.

MLPs have outperformed the market since its peak on April 28^th, dropping 12.1%, compared with 13.7% for the S&P 500.  Gold has well outperformed both since late April, but was down this week.

More generally, the headlines this week were dominated by Bernanke’s speech at Jackson Hole, the earthquake and Hurricane Irene.  None of these news items are likely to have a meaningful impact on MLPs.  MLPs should benefit generally from the Fed’s decision to hold interest rates low at least until 2013, but the Bernank’s speech Friday produced not much in the way of new information.

The earthquake Tuesday was a non-event for the nation’s energy infrastructure, and therefore for MLPs.  Hurricane Irene is likely to have a larger, but transient effect on east coast assets owned by MLPs.  There were several press releases and reports from MLPs of pipelines shut down as a result of the hurricane’s damage, but nothing that won’t be restarted in the next few days.  See here for news that Kinder Morgan’s Plantation pipeline would be shut down temporarily due to power outages in the area.

News this week for MLPs was very light.  Aside from announcements of pipeline shut downs due to the hurricane, there were only 2 small news items below:

• Inergy Midstream IPO filing (see my thoughts on that from earlier this week here)
• Encore Energy Partners LP acquires Permian Basin properties for $14.8mm (press release)

So, in a week light on news, MLPs melted up from Monday through Friday.  Next week, as the waters in New York recede, and as people remain on vacation, I would not expect many deals either, especially capital markets deals.  The absence of new equity supply for another week, with limited positive or negative catalysts and with value buyers starting to come into MLPs to pick up yield they can’t get elsewhere, I’d expect MLPs to have another solid week.  I believe MLPs have more upside risk than downside risk at this point, and expect September to be positive for MLPs as it was last year.  My basis for this is simply market alternatives.  With sentiment about everything bottoming out, people tend to find MLPs as a solid alternative to other investments.  As we’ve seen the past few volatile weeks, it takes time for that transition to happen.

As far as winners and losers this week, as shown below, $PNG and $BWP continue to struggle.   $SPH has recovered nicely of late, up 15.0% since bottoming on August 8th.  Small coal MLP $OXF led the way this week with gains of 6.9%.  It was a pretty tight band of price changes this week, with no moves larger than 7%, which was refreshing given the heightened volatility since the beginning of August.

One more note, I want to let readers know that I will be speaking at the DealFlow Media MLP Conference, the first MLP conference ever by DealFlow.  Agenda can be found here.  

Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only.

MLPs had another rough week, slightly outperforming the S&P 500, while everything under-performed gold.  Treasuries yields dropped even lower than last week, briefly ticking below 2% on Thursday.   Right now is all about liquidity sucking out of the markets and fleeing to safety, so as yet there has been no positive impact on MLPs from the lower rates.  But if rates remain below 2.5% for a sustained period of time, cash should eventually seek out high yield alternatives like MLPs.

While for the week, MLPs were down 4.2%, from Monday’s close through Friday’s close, MLPs dropped 6.0%, including 3% on Thursday and 2.3% on Friday.  On the chart below you can see the bulk of the drop came in between Wednesday and Thursday, and continued on Friday afternoon.

Commodity prices were in the driver’s seat last week, as commodity-price sensitive names dominated the bottom 5.  There wasn’t much news out of the MLPs, other than $WMB management reiterating their belief that WMB’s bid is superior to $ETE’s for $SUG, particularly in light of market action that has dropped ETE by roughly $5 a share in the past month.  SUG responded that for now its sticking with ETE, but this drama is likely far from over given the shareholder vote is a few months away.

Of the positive movers, $MMLP continued to recover from a huge drop after earnings a few weeks ago, $TLP as well.  The top performer for the week, $NGL, announced a propane acquisition and a few firms initiated coverage of the company with positive comments.

The chart above doesn’t include the publicly-traded MLP general partners, but GPs were hit particularly hard last week.  On average, GPs dropped 7.3% this week, with XTXI (-16.5%), KMI (-11.0%), and ATLS (-10.4%) having the largest week over week declines.  GPs tend to be more heavily owned by institutions, particularly GPs that are structured as corporations like XTXI, KMI and TRGP, because with corporations there are not the same hurdles to ownership as for MLPs.  So, when broad markets decline, the volatility of the corporately-structured GPs tend to fluctuate in value wildly.

This week, Citigroup will host what used to be the UBS conference in Las Vegas (it changed this year because of a mass exodus of energy investment bankers from UBS to Citigroup, including my brother).  I will not attend the conference, but I saw press releases from many MLPs who will be attending the conference, but the funny thing is, I found only one press release (from $MWE) that actually stated where the conference was being held (MWE’s press release).

Every other MLP press release I read mentioned that management was attending the conference, but just left out where the conference was.  Here is how $EPD’s press release reads:

In EPD’s press release for the NAPTP conference in May, the location is pretty clearly spelled out.  Here is how that press release reads:

Its easy to understand why public companies don’t want to advertise that their executives are spending a day or two on the company’s dime in Las Vegas, but I thought it was amusing in an otherwise pretty bleak month for MLPs.  Also, I am not picking on EPD, literally every MLP except MWE failed to mention location in their press release.

Good luck this week, looks like libya news might push oil down further putting more pressure on MLP unit prices today, but we’ll see. I’ll be in the office while executives get wined and dined in Vegas, and most of Wall Street is on vacation.

Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only. Long EPD.