Category Archives: MLP Market Post
Apr 5th, 2012
MLP Market Post
Short week and the Masters on TV equals short Week Thoughts post, with Winners and Losers charts at the end, so keep scrolling. Here goes…
Fears that the Fed may not keep the stimulus flowing, rising government borrowing costs in Spain and further signs of weak growth in Europe weighed on the market this week. But that didn’t stop AAPL from closing the week at a fresh all time high. MLPs fared well Monday and Tuesday, but sold off with the market Wednesday and both the S&P 500 and MLPs finished flattish Thursday.
MLPs finished the week flat, while the S&P 500 finished down 0.7% and energy stocks (XLE) finished down more than 1.5%, on flat oil and weaker natural gas prices this week. S&P 500 is still way out in front of everything else, and gold is doing well despite a big drop this week.
News of the (MLP) World
There were two E&P joint ventures announced this week, continuing the torrid pace of E&P acquisitions so far this year. I expect E&P MLP M&A activity to continue to be high as well-capitalized E&P MLPs will have the ability to pick up properties from struggling public corporations and private companies whose borrowing bases get reset to lower natural gas price decks, which continue to get lower as natural gas storage levels are 61% higher than their 5 year average. Speaking of E&P Acquisitions…
Linn Energy JV – LINE announced $400 million joint venture with Anadarko in Wyoming (press release) (no position)
- $34 million in first 12 months EBITDA implies initial purchase multiple of 11.8x
- $85 million expected EBITDA by 2016, which implies 7.1x fully baked EBITDA multiple assuming $600 million of total capital
- Reserve life estimated at 28 years, with 7 percent decline curve
- First 12 months production: 1,600 bbls/d
- 2016 expected production: 3,800 bbls/d
- Thoughts: Price seems rich, but is slightly accretive near term that grows as production ramps through 2016. No equity immediately needed to fund this deal given $700mm+ equity deal in January and $1.8 billion in new debt issued for $1.2 billion Hugoton acquisition. LINE continues to extend its lead as the largest E&P MLP by far, the $1.8 billion acquired assets so far in 2012 is more than the market cap of each of the other MLPs with the exception of EVEP.
Atlas Resource Partners JV – Announced 50% JV in Mississippi Lime Play for $18 million (press release) (no position)
- 50% JV in 14,500 net undeveloped acres in Oklahoma
- Potential for gathering & processing infrastructure opportunities for affiliate APL
Williams Partners Equity Offering – WPZ priced $545 million equity offering (press release) (no position)
- Priced at 3.09% discount to last trade
- Clearly anticipated by the market, which beat down WPZ’s unit price from $61.06 on the day prior to announcing the $2.5 billion Caiman acquisition. So, this deal was done at a 10.7% discount to that price. I bet WPZ would have preferred that it were still 2007 so they could have done a PIPE and financed the deal prior to announcing the acquisition.
ONEOK Partners Bakken Investment Grows – OKS to spend an additional $140 to $160 million in Bakken (press release) (long OKS)
- Will construct 270-mile gathering system and related infrastructure in North Dakota
- Will be completed in 2H 2013
- Total investment in Bakken to reach $1.5 billion to $1.8 billion between 2011 and 2014
Plains All American expects to exceed guidance (press release) (no position)
- EBITDA for 1Q expected to be 15% to 20% higher than PAA’s February guidance
- Implies EBITDA of $470 million, compared with $400 million in guidance
- Outperformance driven by “strong fundamentals, generally favorable market conditions and solid execution in all three business segments”. Pretty vague, but oil differentials and storage demand probably contributed.
Sempra Energy might form MLP – SRE indicated at an analyst presentation that they are strongly considering the formation of an MLP, potentially to house its eventual LNG export terminal and its ownership stake in the Rockies Express Pipeline.
Winners and Losers
No surprises this week, coal, propane and commodity sensitive gathering and processing MLPs still struggling, with the exception of PVR, which was up 4.2%.
No change in the bottom 5 for the year this week, not much change at the top either.
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. Long OKS.
Apr 5th, 2012
MLP Market Post
My latest post is up at Equities.com. In it, I give credit to the MLP focused closed-end funds for outperforming the MLP Index to date, and talk about some of the reasons why. Click here to read it.
As a bonus available exclusively on my site, see below or click here to look at the spreadsheet of all the MLP investment alternatives (35 in total) out there. You’re welcome readers!
(Click to enlarge)
Mar 30th, 2012
MLP Market Post
MLPs managed to finish the quarter with a positive day today, after 6 straight losing days, and a meek last month of trading. MLPs are still roughly flat for the year on a price basis and are around 2% including distributions. Flat performance for the quarter was driven by lower commodity prices, rising rates, and fast money shifting towards stocks over MLPs.
Propane, coal, natural gas storage, dry gas focused gathering and processing, E&P MLPs, natural gas pipelines are all a little broken at the moment with natural gas prices and the weather as it is. The few panes of the MLP space that remain unbroken so far are NGL-focused and crude focused MLPs. If energy prices continue to languish, and America maintains a sustained competitive advantage in energy prices, that should have a very positive impact on the economy generally and on large cap U.S. stocks. MLPs will benefit generally from the growth in supplies (and hopefully growth in demand) for natural gas, oil and other petroleum byproducts. But the positive impacts on some MLPs would be balanced by MLPs with businesses that would be negatively impacted (like dry gas focused gathering, natural gas storage, and E&P MLPs). Oh, and rising interest rates wouldn’t help matters much, either.
The chart below highlights that the under-performance the last month has not been limited to MLPs. Energy stocks generally (represented here by XLE), have been hammered as well, no doubt the result of continued natural gas price declines.
Natural gas prices, the story of the first quarter for MLPs and energy, broke down completely starting in late 2011, when it became apparent that a harsh winter was not going to happen. Colder than normal winter weather in late 2010 / early 2011 propped up natural gas prices even with rapid production growth and high levels of natural gas in storage. This year not so much, and it is clear that a new, very large demand source will be needed to clear the glut of natural gas currently in storage.
So, sub $3.00 per mmbtu natural gas is here to stay and that realization seeped into the investing consciousness throughout the quarter at an increasing rate. Energy stocks peaked in late February, then drifted lower and lower into the end of the quarter (today’s window dressing rally notwithstanding). The energy and MLP sell off seems overdone, certainly relative to the broader stock market, which had its best first quarter since 1998.
Certainly some MLPs will be in trouble if natural gas prices remain range bound between $2.00 and $3.00 per mmbtu. However, there are many MLPs that have never seen more opportunities to deploy capital profitably around build out of shale infrastructure. The trend highlighted with the chart below, natural gas production, is a new normal. Natural gas, oil and NGL production will be increasing in the coming years, and in areas that have not historically grown production, creating massive opportunities for MLP capital deployment.
In summary, there are some serious headwinds facing the MLP sector overall, but there are also some very good opportunities. The days of picking a handful of MLPs out a hat and doing well are over. Note: investing in MLP ETFs, ETNs, and even closed end funds constitutes picking a handful of MLPs out of a hat in my book. These days, if you don’t know much about the sector, you’d be better served doing a little research on assets owned, looking at valuation and choosing a small portfolio yourself… or you can hire someone like me, of course.
News of the (MLP) World
- VNR Debt Offering – VNR priced up-sized $350 million in senior notes due 2020, with a 7.875% yield (press release)
- Seaway Expansion – EPD and JV Partner ENB announced they have secured the requisite multi-year crude volume commitments to expand Seaway Pipeline to 850,000 barrels per day. First phase set to begin operating by June 1, with 150,000 barrels per day, then capacity would increase to 400,000 bpd by 1Q2013. The plan is for full capacity to be reached by mid-2014. (press release)
- KMP Terminal Expansion – KMP announces expansion to Edmonton terminal in Alberta region of Canada. Commitments will support an additional 1.2 million barrels of capacity. Total cost of the expansion is estimated at $284 million. (press release)
- APU Tender – APU announces that its offer to tender $200 million of its 6.5% Senior Notes due 2021. The offer was well oversubscribed, such that there will be proration in terms of who gets to sell to APU. (press release)
- ETE / SUG Deal Closed (press release)