Category Archives: MLP Market Post
Apr 27th, 2012
MLP Market Post
Everything was up this week, but MLPs were near the bottom of the list as shown below. Natural gas futures were up more than 13% week over week, driving the energy sector higher (XLE was up 2.6%). The S&P 500 was up 1.8%, breaking a 2 week streak of MLP outperformance.
Propane doesn’t look so bad this week, but its all about timing. NRGY’s announcement of better than expected distribution cut (sort of like a weaker than expected punch in the face) and the announcement NRGY will exit the retail propane business sent it up 20.4% for the week to $19.08. Widen the lens a bit, and the picture is not so bright, last April 27th NRGY closed at $40.24 per unit, so that’s more than 50% decline in value last 12 months. But hey, could have been worse, and it appears NRGY plan to spin off NRGM with excessive IDRs, then morph NRGY into a pure play GP holdco may work.
In other names, CQP had a huge week even with higher natural gas prices, NKA continued its strong trading, and FGP caught the “propane may not be absolutely terrible” wave to a strong week as well. NS had ok earnings, but flat distributions and not many very high growth expectations sent it lower.
Remember that wider lens we were talking about for NRGY and OXF? Even with the sharp uptick this week, OXF and NRGY remain in the cellar on a year to date basis. CQP is far and away the big winner this year to date.
The wide look at year to date performance highlights that even with the great week natural gas had, natural gas remains the biggest loser. With the S&P 500′s outperformance this week, MLPs are back to more than 10% underperformance year to date. Note that doesn’t include distributions. GPs are way out in front.
30 MLPs and 3 GP holding companies announced distributions this week. So far this quarter, 60 MLPs have announced distributions, averaging 0.9% distribution growth quarter over quarter. 37 of those 60 MLPs have raised distributions. 6 out of 7 GP holding companies have announced distributions, 4 announced raises, average dividend / distribution growth of 4.2%.
- LINE raised 5.1%
- APU raised 4.9%
- EROC raised 4.8%
- ATLS raised 4.2%
- MWE raised 3.9%
- CHKM raised 3.8%
- MMP raised 3.1%
- OILT raised 2.9%
- RRMS raised 2.8%
- PVR raised 2.0%
- PSE raised 2.0%
- WPZ raised 2.0%
- SXL raised 1.8%
- APL raised 1.8%
- DPM raised 1.5%
- HEP raised 1.1%
- EXLP raised 1.0%
- VNR raised 0.9%
- LGCY raised 0.9%
- EVEP raised 0.1%
- NRGY cuts distribution 46.8%
- OXF held flat, but cuts subordinated distribution to $0.10 (77.1% less than common unit distribution of $0.4375, saves $3.5 million per quarter)
- RGP, MMLP, CPLP, NKA, NS, NSH, STON, NMM, ETP, ETE, MCEP announced flat distributions
More to come in Week Thoughts tomorrow or Sunday on earnings this week and next.
Apr 22nd, 2012
MLP Market Post
The start of earnings season was in focus this week, and while AAPL had a rough week (down 5.3%, second straight down week), the rest of the S&P 500 did fine, up 0.6% on the week. MLP performance was varied this week, but the large caps did very well, so the MLP index was up 1.8%, gaining on the S&P 500 slowly. Its a race to the bottom between interest rates and natural gas prices. Both were down this week, natural gas is down to $1.93 and the 10-year is down to 1.97%.
MLPs separated from the S&P 500 and the energy industry on Thursday and Friday, as the broader market rally slowed as the week progressed. That could have been a result of decent earnings for KMP and the implications for earnings upcoming this week.
How Good Will Earnings Be?
Earnings season will kick into full gear after we got warmed up with KMP earning Wednesday of last week. For a sense of how earnings will go, let’s review how some market forces have trended and how that might impact certain types of MLPs. Certain MLPs will have very good earnings, others will have scary earnings, and of course, at least one MLP (NRGY) will cut its distribution. Active, careful MLP selection is more important than ever.
- Natural gas prices remain very unattractive
- Bad for gathering companies with percent of proceeds (POP) contracts
- Bad for gathering volumes in predominantly dry gas plays (like Barnett and Haynesville)
- Bad for natural gas storage players
- Bad for Texas intra-state natural gas system owners (ETP and KMP)
- Bad for E&P MLPs with heavy concentration of natural gas production
- Good for fertilizer producers
- Good for LNG export facility developers
- Bad for compression providers
- Oil prices remain high, Oil drilling activity remains high
- Good for oil focused pipeline MLPs with assets located near heavy activity areas (like Bakken and Eagle Ford)
- Good for E&P MLPs with heavy concentration of oil production
- Processing margins and NGL prices remain very attractive
- Good for MLPs with processing capacity close to Mt. Belvieu
- Good for gathering MLPs with fee-based contracts in liquids-rich plays
- Good for gathering MLPs with percent of liquids (POL) or keep whole contracts in liquids-rich plays
- Good for NGL pipeline operators debottlenecking Conway to Mt. Belvieu
- Good for E&P MLPs with heavy concentration of liquids production
- High propane prices relative to natural gas causing volume declines for propane MLPs
- Coal prices and demand are very weak, but exports of met coal are in high demand
- Bad for coal royalty players and coal producers
- Good for coal export terminal operators (like KMP)
- Refined products demand remains weak
- Bad for refined products pipeline operators (but rate increases are coming next quarter)
- Much warmer than average weather
- Bad for propane MLPs
- Bad for heating oil
- Bad for natural gas prices
KMP earnings came in ok, roughly inline with analyst expectations. High oil and liquids prices helped KMP’s CO2 business outperform expectations again, and coal export growth helped boost terminals results. Those segments combated weaker results in natural gas pipeline and refined products pipeline segments. There are many moving pieces in the KMP/KMI/KMR/EP/EPB puzzle right now, but a Kinder offered some clarity and guidance on drop downs. KMI will drop down all of Tennesse Gas Pipeline and portion of El Paso Natural Gas Pipeline to KMP in 3Q12. KMP will fund a portion of those drop downs with concurrent agreed-upon sales of assets like KMP’s 50% stake in Rockies Express. Also, EP has offered to sell the remaining 14% of the Colorado Interstate Gas and all of Cheyenne Plains Pipeline to EPB. Other notes:
- Terminals organic capex was increased by $350 million, most of it related to build out of coal export facilities. As discussed here, coal exports were higher in 2011 than any year since 1991. This is another case when owning the infrastructure is better than owning the producers.
- 1.1x coverage for the quarter. This is enough for KMP, which (differently from EPD) chooses to pay out almost all of its cash flow and externally finance growth. Management expects that KMP’s coverage will dip below 1.0x for the next 2 quarters, but will be above 1.0x for the 4th quarter and full year.
News of the (MLP) World
Despite no capital markets transactions and minimal M&A announcements, it was a really busy week for MLP news. There were 21 distribution announcements (details below on those), 1 earnings announcement (discussed above), a new MLP filed, a new MLP ETF launched, several expansion projects announced and 1 LNG terminal authorization announcement.
NRGY Credit Facility Cut – NRGY released 8k stating it’s credit facility decreased to $550mm from $700mm. The amended credit agreement allows for NRGY to sell up to 5mm NRGM common units. It also allows for NRGY to sell all of the assets related to U.S. Salt.
- Still no clarity on how much the distribution will be cut, but I expect another sell off to happen when the distribution does get announced. NRGY won’t bottom until that final big sell off, in my opinion.
New MLP Filed – From Charlesbank, the private equity group behind Regency Gas Services (before they sold it to another private equity group, HM Capital), comes another gathering and processing MLP called Southcross Energy Partners, L.P. (SXE). According to the initial S-1, SXE is expected to earn EBITDA of $61.5 million in the next 12 months, and $48.0 million in distributable cash flow. That implies around a $650 million enterprise company, which is pretty big for an MLP just going public. SXE expects to generate around 63% of its gross margin from fixed-fee or fixed-spread contracts. 20.8% of its 2011 revenue came from Formosa Hydrocarbons Company (S-1 Filing)
Positive LNG Developments
- Sempra Energy (SRE) signed development agreement with Mitsubishi and Mitsui for its Louisiana LNG facility. Construction is expected to start late 2013 with operations starting in late 2016 (press release)
- Cheniere (LNG / CQP) received FERC authorization to construct and operate liquefaction facilities at Sabine pass in Louisiana. This comes on the heels of CQP taking the steps to arrange up to $4B in financing yesterday (press release)
Another OKS Growth Project - OKS announced plans to invest $350mm in Cana-Woodford Shale. Organic capex budget is now expected to be $1.5 billion in 2013 and $1.0 billion in 2014.
Memorial Productions Partners Acquisition – MEMP’s second acquisition in 2 months, this one ($38 million) a bit more than twice the size of the first ($18 million). Properties purchased are in East Texas and North Louisiana. Sponsor support is clearly there, but an acquisition every month until gas prices rebound is probably asking too much.
- 6-6.5x EBITDA range, paid around $1.70 per mcfe of proved reserves
- Acquisition will be paid for with revolving credit facility, which still has $100+ million available
- MEMP remains the MLP with the most concentration of natural gas production (95%+)
New MLP ETF Launched - ticker MLPA, sponsored by Global X, will track the Solactive MLP Index (please let me know if you have heard of either Global X or Solactive MLP Index before right now). Big selling point for MLPA is the lower expense ratio of 0.45%. (read more)
Distribution Announcements This Week
21 Distribution / Dividend Announcements this week for an average quarter over quarter change of 2.1%:
- XTXI ups 9.1%, 33.3% year over year
- CLMT ups 5.7% qoq, 17.9% yoy
- WES ups 4.5% qoq, 17.9% yoy
- TLLP ups 4.1%, 11.9% since IPO
- OKS ups 4.1% qoq, 10.4% yoy
- KMP ups 3.4% qoq, 5.3% yoy
- KMI ups 3.2% qoq, 10.3% since IPO
- XTEX ups 3.1%, 13.8% yoy
- EPB ups 2.0%, 10.9% year over year
- CMLP ups 2.0% qoq, 13.6% yoy
- SEP ups 1.1% qoq, 4.3% yoy
- BBEP ups 1.1% qoq, 9.0% yoy
- LGCY ups 0.9% qoq, 4.7% yoy
- CQP, GSJK, MEMP, GLP, NRP, RNO, SPH, TLP held distribution flat qoq
Disclosure: The information in this article is not meant to be financial advice, I am not your financial advisor and I am posting my comments for informational purposes only.
Apr 21st, 2012
MLP Market Post
MLPs outperformed the S&P 500 for the second week in a row, and this time when both were up, not down. Natural gas continued down, closing the week well below $2.00 per mmbtu. Variable distributon MLPs were down 3.5% on average, led by a 10% drop by everyone’s favorite Terra Nitrogen and a 6% drop for Dorchester Minerals (which went ex-date this week). Royalty trusts on average were down as well, led by Mesa Royalty Trust (-11.4%) and Chesapeake Granite Wash Trust (-7.4%).
Anything with the name Chesapeake attached to it had a pretty bad week on the news that CEO Aubrey McClendon has $1.1 billion in previously unreported loans secured by his personal stake in CHK wells. CHK was down 12.6% and Chesapeake Midstream was down 8.1%. MLP GPs had the best week of all on average up 2.0%, despite the biggest GP of them all, KMI being down 5.9% for the week.
As far as individual MLPs, NKA had a huge week, up 16.1%, and coal MLPs like ARLP and OXF continue to bounce after coal’s severe drubbing to start the year. RNO was the exception, down 4.1%, which may have something to do its Utica exposure (Utica related stocks like CHK were all down mostly). Compression MLPs EXLP and GSJK were down sharply as well, I can only assume on realization that earnings could be bad with drilling curtailments.
This week, oil-focused E&P MLP MCEP dropped out of the top 5 for the year, and NKA jumped up into the top 5. No changes in the bottom 5 this week, still coal, propane and EROC.
MLPs are at this moment positive for the year (slightly) and, after two weeks of outperformance, MLPs are closing in on the S&P 500. Variable distribution MLPs and GP holding companies remains in the lead. Natural gas is still ugly.
In summary, there were no MLP equity issues this week, which combined with solid distribution announcements and decent earnings out of KMP helped MLPs outperform. More in my next post on the week that was for MLPs.