Jun 21st, 2015
MLP Market Post
MLPs showed signs of life early in the week gave way to further selling in the back half of the week for MLPs. The MLP Index bounced Monday (+1.3%), and faded throughout the week, before eventually capitulating Friday (-1.6%) to finish the week down 0.5%, a fifth straight week of declines.
On a price only basis, the MLP Index established a new 52-week low Friday. Energy sentiment across the market remains negative. The S&P 500 Energy sector was the worst performing in the S&P 500 at 0.5%. Declining interest rates helped utilities and the broader stock market, while oil and NGL prices seemed to pull MLPs lower, again.
The index is 19.8% off its high from last August (including distributions), and is down 6.6% since the last day of the NAPTP conference in May. On its way to setting a new trough post-conference, MLPs have declined in 13 of 19 trading days.
In perhaps my most obscure pop culture reference ever, the title above comes from a 10 second Comedy Central promo featuring Mike Myers from 1999 that somehow stuck in my head ever since, and that I somehow found on the Internet. It captures the mood of the MLP market from my perspective.
Hopefully everyone is (or was depending on when you read this) able to separate themselves from the market this weekend and enjoy Father’s Day. Also, hopefully watching another chapter in the slow demise of the once-great Tiger Woods at the U.S. Open doesn’t remind you of MLPs in any way…
Poll Question Recap
Last week’s poll question asked what valuation read-throughs could be gleaned from the high EBITDA multiples paid for the Hess Midstream assets by GIP and the Hiland assets by KMI. The winning answer was that the high multiple was more reflective of the GP value embedded in the Hess Midstream acquisition that reflective of MLPs being undervalued. Second highest result (33%) was the answer that the multiple indicates MLPs are undervalued. Interestingly, 18% of you said it meant MLPs were overvalued, and 15% of you didn’t think it meant anything about MLP valuation.
This week, I want your opinion on the drivers of recent MLP weakness, but I did not include an “all of the above” option, because chances are all of these are playing a role.
Winners & Losers
PBFX led all MLPs this week (not counting the penny stock takeout of NKA), because PBFX’s sponsor (PBF Energy) acquired a Louisiana refinery, and estimated an additional $30mm worth of MLP-qualifying EBITDA came along with it. No other top 5 performing MLPs had any news. NGL traded up sharply on heavy volume in the final minutes of trading Friday on no news, vaulting into the top 5 for the week.
Not shown on the chart below, EPD was down almost 3% Friday, closing at its lowest point since December 2013. EPD is now 25.5% off of its 52-week high, widely underperforming the index of which it represents more than 17%. So much for safety in large-cap MLPs…
On the downside, AZUR’s equity offering derailed its stock price in a big way. NSLP made it two straight weeks in the bottom 5 as well. SXCP was slammed on news that Haverhill Chemicals (a customer of SXCP) would be permanently shutting down a facility.
On a year-to-date basis, the top 5 shifted around a bit this week, with DKL rising to 2nd place, leapfrogging TLP and a few others. CLMT and NGL jumped in to the top 5, replacing USAC (-8.8% this week) and MMLP (-6.6%). There is still a small cap bias among the top 5, while the bottom 5 is dominated by coal and E&P MLPs.
GP Holding Companies
There was limited follow-through week over week for individual GP holding companies. TEGP and ATLS led the way last week, and underperformed this week. WMB seemed to catch a bid, perhaps helped by ramping volumes at Geismer. PAGP and ENLC clawed back some of their losses from last week, while AHGP continued lower.
News of the (MLP) World
It was quite an active week for MLP press, and for the MLP equity printing press. Two MLP IPOs launched and two small cap MLPs executed very challenging equity offerings. Also, we got a series of drop down acquisitions in the U.S. (and a big one in Canada). Also, an MLP that had basically been slowly dying since it went public, was acquired for a mega premium to its recent trading price.
- Green Plains Partners (GPP) launched $200mm MLP IPO of 10.0mm units with a midpoint price of $20.00/unit (8.0% yield based on MQD) (prospectus)
- Expected to price 6/25/15
- GPP provides ethanol and fuel storage, terminal and transportation services through terminals, storage tanks, and transportation assets
- CNX Coal Resources (CNXC) launched $200mm MLP IPO of 10.0mm units with a midpoint price of $20.00/unit (10.25% yield based on MQD) (prospectus)
- Expected to price 6/24/15
- CNXC was formed by CONSOL Energy, and operates thermal coal mining operations in Pennsylvania
- Azure Midstream (AZUR) priced public offering of 3.5mm units at $14.17/unit, raising $49.6mm in gross proceeds (press release)
- Overnight offering, priced at 6.7% discount to prior closing price, and traded down another 2.6% from pricing in the next session
- Use of proceeds: to repay borrowings
- CrossAmerica Partners (CAPL) priced public offering of 4.6mm units at $31.45/unit, raising $144.7mm in gross proceeds (press release)
- Overnight offering, priced at 4.7% discount to prior closing price, and traded down another 3.4% from pricing in the next session
- Use of proceeds: to partially fund acquisitions announced this week
- Sempra Energy (SRE – a $25bn market cap, California-based utility) announced plans for an MLP called Sempra Partners (under the ticker SREP) (press release)
- SREP will have a combination of MLP-qualifying midstream assets owned by the MLP and taxable yieldco-type assets owned by a corporate subsidiary of SREP
- SREP has not filed its initial registration statement yet, but expects to in 2H 2015
- Bowie Resource Partners (BRLP) files initial registration statement for $100mm MLP IPO (filing)
- Coal mining MLP, with multiple sponsors, including a subsidiary of Trafigura
- Who would have thought the 2014-2015 time period would see a resurgence in coal MLP IPOs, even as existing ones suffer
- Energy Transfer (ETP) priced $3.0bn of senior notes (press release), including:
- $650mm of 2.5% senior notes due 2018
- $350mm of 4.15% senior notes due 2020
- $1.0bn of its 4.75% senior notes due 2026
- $1.0bn of its 6.125% senior notes due 2045
M&A / Growth Projects
- CrossAmerica Partners (CAPL) announced drop-down and third party acquisitions totaling $303mm (press release)
- Real estate drop-down: CAPL agreed to acquire real estate associated with 29 newly-constructed stores from sponsor CST for $136mm
- Fuel drop-down: CAPL agreed to acquire 12.5% interest in CST Fuel Supply LP from CST for $126mm (CAPL now owns 17.5% of CST Fuel Supply)
- Third party acquisition: CAPL will acquire the One Stop convenience store network of 41 stores with 9 dealer fuel supply agreements in West Virginia for $42mm in cash
- Niska Gas Storage (NKA) announced that it will be acquired by Brookfield Infrastructure for 222% premium (press release)
- Brookfield to purchase all outstanding common units for $4.225/unit, valuing the transaction at $911.9mm
- NKA had suspended its distribution earlier this year, after suspending its subordinated unit distribution prior to that
- NKA went public in May 2010 in a $359mm IPO at $20.50/unit and never traded higher than $22.21/unit
- NKA was down 56% in 2015 prior to the announcement
- Looks like the Radnor, PA area will lose another MLP
- Seadrill Partners (SDLP) announced $540mm drop down acquisition of West Polaris drillship (press release)
- West Polaris is under contract with ExxonMobil through March 2018
- Sponsor has lowered the day rate and acquisition cost to reflect challenging market, in an effort to manage re-contracting risk at the end of the contract
- SDRL acquired the West Polaris via the exercise of an option for a total of $456mm
- Navios Maritime Midstream (NAP) announced $100mm drop down acquisition of two VLCC tankers from sponsor (press release)
- The VLCCs are expected to produce $18.7mm in annual EBITDA, implying 5.4x multiple
- NAP expects to increase distributions 2.4% next quarter as a result of this acquisition
- Enbridge, Inc. (ENB) announced $30.4bn drop down to Enbridge Income Fund (ENF), reiterated dividend growth rates, no clarity yet on when and how the US assets will get dropped to EEP (press release)
- Williams (WMB/WPZ) announced that its Geismer olefins plant is approaching its full expanded production rate, now running at 87% of the 1.95 billion pounds per year capacity (press release)
- Florida Public Services Commission approved Florida Power & Light’s request to invest up to $500mm in natural gas development, and pass costs through to customer rates via a fuel chart (Utility Dive)
- As more utilities look at this as an option, utilities may add more competition for acquisitions of mature natural gas properties, which seems like a marginal negative for E&P MLPs
Jun 14th, 2015
MLP Market Post
Oil, natural gas and NGL prices were up, the S&P 500 and interest rates were stable this week, and yet MLPs were down for a 4th straight week. The selloff was broad-based across sub-sectors, with pockets of small-cap strength. Even a large private equity M&A transaction for midstream assets couldn’t garner enthusiasm for the sector overall. It makes it hard to visualize where the MLP sector catalyst is going to come from.
When oil prices collapsed more than 6 months ago and rig counts starting falling, it was supposed to be a matter of time before oil production peaked. In the meantime, demand would react and eventually catch up with supply, tightening the market into the back half of the year.
Here we are months later, and U.S. production growth is still cresting. Demand is doing its part, and inventory draws have been happening here and there, but growth continues, with production running at around 9.6mmbbls/d in May. We started this journey towards slowing U.S. production months ago, and it has been a painful journey for MLPs. We should soon see production rollover, and in a few weeks we will be in the second half of the year. Maybe the calendar is the catalyst…
Recap: Last week’s poll question was about oil exports, and the consensus of those that voted was that oil producers (37%) would be the biggest beneficiary of the oil export ban being lifted, followed by pipeline and storage MLPs (35%). In last place were the gathering & processing MLPs (4%), behind the U.S. consumers (6%) and shipping MLPs (18%).
This week, the Hess transaction was intriguing because of its high multiple, and I wanted to get your take, readers, on what the valuation implications of the high multiple might be for MLPs.
Winners & Losers
The winners had a small cap bias this week. DKL bounced back from last place last week to first place. SMLP reversed poor recent trading with a 7.4% bounce on Friday, which I can only assume is a positive read through from the Hess Bakken Midstream transaction announced Thursday morning, because Hess is a customer of SMLP’s in the Bakken. HEP will be added to the Alerian MLP Index and traded well in light of that.
On the downside, GLP’s equity offering sent its stock sharply lower, while DPM cracked the bottom 5 this week with no news (and for DPM, no news is bad news, as the market awaits a sponsor solution).
Year to date
Year to date, no change among the bottom 5, still dominated by upstream MLPs. On the upside, its small cap MLPs with limited commodity price exposure leading the way, with DKL replacing GLP in the 5 spot.
GP Holding Companies
GPs had another rough week, but overall outperformed the AMZ. No meaningful announcements among the GPs this week, but PAGP did disclose the PAA pipeline oil spill cleanup expenses so far, which didn’t help. OKE continued its relentless decline, down another 2.7% this week and is now down 45% since peaking in September 2014. When growth rates get reduced at the MLP level, the pain gets amplified at the GP level.
SE made it a second straight week down more than 3%, likely on DPM’s weakness.
News of the (MLP) World
Light week of MLP transactions, but news flow around the MLP space was pretty extensive. Alerian announced big turnover in this quarter’s index rebalancings. Hess Midstream found a big private equity partner for its eventual MLP, Cheniere announced another 19 mtpa of LNG export projects, and a yieldco IPO launched. In the MLP space, there was a small follow-on offering that traded down in the after-market, suggesting pricing on follow-on offerings still hasn’t quite been calibrated for the new normal MLP fund flow situation.
- Global Partners (GLP) priced offering of 3.0mm units at $38.12/unit, raising $114.4mm in gross proceeds (press release)
- Overnight offering, priced at 4.2% discount to prior closing price
- GLP declined an additional 2.2% from pricing in the next trading session
- 8point3 Energy Partners (Nasdaq: CAFD) launched IPO of 20.0mm shares with a midpoint price of $20.00 (4.2% implied yield) (filing)
- CAFD is a partnership in structure and a corporation for tax purposes, and I would classify it as a yieldco, so will not include in ongoing MLP-related statistics
- Expected to price 6/18/15
- Shell Midstream (SHLX) filed S-1 to register the 7.7mm units it sold in a private placement last month for the firms that purchased the units (filing)
- Summit Midstream (SMLP) entered into equity distribution agreement to sell up to $150mm of equity at-the-market (filing)
- Royal Resources Partners files for MLP IPO to raise up to $100mm (filing)
- Cypress Energy (CELP) filed S-3 to register up to $1.0bn of debt and equity securities (filing)
- CELP is also registering 7.5mm for secondary sale
M&A / Growth Projects
- Hess Corporation (HES) announced sale of 50% interest in its Bakken Midstream assets for $2.675bn and formation of joint venture with Global Infrastructure Partners (press release)
- Assets expected to produce $295mm EBITDA the next 12 months, implying an 18x multiple for GIP’s 50% stake
- The JV will spend $325mm to $350mm in capex over next 12 months
- Hess Midstream plans to move forward with its MLP IPO (already on file) following the close of the acquisition and formation of the JV (expected in 3Q 2015)
- GIP is a private equity investor that recently raised a $10bn infrastructure fund
- In the past, GIP purchased a 50% G.P. interest plus L.P. interests in Access Midstream Partners from Chesapeake, eventually selling its stake to Williams
- Energy Transfer (ETP) provided additional details of its $1.5bn Project Revolution in the Marcellus (press release)
- ETP has entered into long-term gas gathering, processing & fractionation agreements with EdgeMarc Energy
- ETP has purchased 20 miles of gathering pipeline from EdgeMarc and plans to build a 200 mmcf/d processing plant, a new fractionator and additional gathering pipelines to support the midstream agreements
- The new plant is expected to be in-service by 2Q 2017, with residue gas from the plant flowing into ETP’s Rover pipeline and NGLs flowing into the Mariner East pipeline
- Cheniere Energy (LNG) announced two new LNG projects (press release)
- LNG plans to develop approximately 9 mtpa of incremental LNG production capacity at Corpus Christi (2 additional trains) after receiving regulatory approvals in 2017
- In addition, LNG plans to partner with Parallax Enterprises to develop up to 10 mtpa through two mid-scale LNG projects in Louisiana
- Both projects could begin production by 2021 and be fully ramped up to capacity by 2025
- Alerian announced changes to its MLP Index and MLP Equal Weight Index (press release)
- Added: AM, DM, SHLX, GLP, HEP
- 3 of the 5 went public in 4Q last year
- Removed: NRP, LGCY, BBEP, BWP, NMM
- Only 1 coal and 2 E&P MLPs left in the index, with combined weights of less than 2% (those combined sectors peaked at around 10.6% in 2011)
- Weights of these new additions should be higher than the sub-2% combined weight of the removals, which means the creep higher of EPD, ETP, MMP weights will take a break (at least until WPZ gets removed from the index)
- Added: AM, DM, SHLX, GLP, HEP
- Alerian announced SHLX to be added to the Alerian MLP Infrastructure (AMZI) Index (press release)
- No removals
- This is the index tracked by the biggest MLP ETF in the market
- Other index changes:
- Alerian Energy Infrastructure Index added in 7 general partner holding companies, 4 MLPs and 1 energy infrastructure stock (MIC), removing 7 companies (including 3 MLPs that were subsidiaries of some of the GPs added)
- Alerian Natural Gas MLP Index removed 2 compression MLPs and replaced them with AM and DM
- In an 8-K, Plains All American (PAA) provided an update on the California pipeline spill that occurred on May 19th (filing)
- PAA has incurred $65mm in costs to date, about $3mm per day, not counting potential insurance recoveries
- Approximately 75% to 80% of the affected shoreline has achieved end-point cleanup goals
- PAA ramped up personnel working on the cleanup from 250 to 1,400 over the first 21 days of the spill, and at one point had 25 vessels working, all under the direction of the Unified Command (a combination of 5 Federal agencies, 3 state agencies and PAA working on the cleanup)
- Management changes:
Jun 7th, 2015
MLP Market Post
MLPs were hit hard in a broad-based sell off that saw the Alerian MLP Index decline 2.5% this week. The focus appeared to be a combination of negative factors, including: volatile oil prices, spiking interest rates (+29 bps this week), collapsing propane prices (new multi-year low), and fear over an OPEC surprise that didn’t materialize. MLPs did fare better than utilities, but again underperformed the S&P 500.
There were two MLP analyst days this week, and the market reacted negatively to both. With those events behind us, MLPs are entering a quiet period for scheduled MLP-specific news. The last couple of months, we’ve had a fire hose of data points and chances for MLPs to remind the market of their story (first quarter distribution and earnings announcements, analyst days, NAPTP conference, etc.). From here until around mid-July, the MLP-specific news flow should be little more than a trickle.
We will continue to see equity deals, hopefully balanced by M&A and growth project announcements. M&A is probable (especially drop downs), but I’m not holding my breath for a spate of new growth project announcements. That leaves MLPs to trade based on oil prices, storage reports, and interest rates, which may offer opportunities to buy MLPs that will have positive MLP-specific news at their next opportunity.
In the midst of the current oil correction, the chatter around U.S. oil exports seems to be gaining some steam. In light of that, this week I wanted to get your take on who wins if the oil exports ban were to be lifted, with the following poll question.
Global Listed Infrastructure
I wanted to highlight quickly a brief interview with CBRE Clarion’s Jeremy Anagnos on the topic of listed infrastructure that was published last week at the website of Institutional Real Estate, Inc (IREI). Jeremy is the senior portfolio manager for the MLP strategy I help manage and for the global listed infrastructure strategy we run as well.
Listed infrastructure was a totally new concept when I joined CBRE Clarion a few years ago, but it means we invest in public companies with infrastructure assets anywhere in the world. Infrastructure includes utilities, airports, toll roads, railroad operators, and of course midstream companies (and MLPs). It means we can invest in global companies that may benefit when MLPs might be out of favor.
Winners & Losers
Winners were few and varied this week. No trends, a mix of small caps, an upstream MLP and a super drop down MLP. On the downside, FGP announced a large acquisition and an equity deal, neither of which were well received. There was no news among others in the bottom 5, but on weeks like this when MLPs are seeing wholesale selling, smaller MLPs (like DKL and RRMS) tend to see exaggerated moves.
Not pictured below, 3 of the largest MLPs had news or events this week, and only one of them outperformed the index: EPD -2.7%, PAA -2.0% and MWE -3.8%.
Year to Date
DKL’s poor performance dropped it from the top 5 year to date, replaced by TLP. On the downside year to date, WLKP moved up, making the bottom 5 the exclusive domain of upstream and coal MLPs, which seems about right.
General Partner Holding Companies
For the second straight week, there were less than 5 GPs with positive performance, and for the second straight week, the median GP return matched the AMZ’s performance. WGP rallied on Friday, but was crushed Thursday when APC was marketing a secondary of WGP units. OKE and WMB were probably down on weaker NGL prices. EXH management was making the rounds with institutions discussing their pending spin off of EXH’s international assets. PAGP had a volatile week, but managed to squeak out a gain.
News of the (MLP) World
PTXP picked a bad week to go public, but managed to price their IPO at the midpoint. There were two other equity deals that likewise struggled. On the M&A front, several transactions were announced this week, totaling around $3.2bn in value. Also, the Delaware basin appears to be short processing, as MWE announced a plant there just a few weeks after EPD announced one. These two well-capitalized new entrants join a crowded group of midstream MLPs planning to capture volumes in the region with new processing capacity.
- PennTex Midstream (PTXP) priced IPO of 11.25mm units at $20.00/unit, raising $225mm in gross proceeds (press release)
- Midpoint price represented a 5.5% initial yield
- PTXP opened at $20.95 (+4.7%), traded as high as $21.02 and as low as $19.20, before closing at $19.48 (-2.6%) on its first trading session
- Western Gas Equity (WGP) announced pricing of secondary offering of 2.0mm units owned by sponsor Anadarko (APC) at $58.20/unit, raising $116.4mm in gross proceeds for Anadarko (press release)
- The WGP unit sale was executed concurrently with an offering of 8,000,000 WGP-linked tangible equity units (TEU) with a stated amount of $50/unit and a 7.5% coupon, netting APC around $387mm in proceeds
- Each TEU includes a prepaid equity purchase contract and a senior amortizing note, that will settled in 3 years through delivery of WGP or APC units
- FGP priced public offering of 6.325mm units at $23.00/unit, raising $145.4mm in gross proceeds (press release)
- One-day marketed offering with a file-to-price decline of 5.3%
M&A / Growth Projects
- Enterprise Products (EPD) announced acquisition of EFS Midstream from Pioneer Natural Resources and Reliance Industries Limited for $2.15bn (press release)
- EFS Midstream provides natural gas gathering, treating, compression and condensate processing services in the Eagle Ford Shale
- Pioneer and Reliance will dedicate their combined Eagle Ford acreage to EPD under 20-year, fixed-fee gathering, agreement that includes a minimum volume requirement for the first 7 years
- The sellers will also enter into a 20-year fee-based agreement for natural gas processing, NGL transportation and fractionation, and for natural gas, condensate and crude oil transportation services
- Acquisition will close in 3Q15, with EPD paying in two installments over the next year
- EPD management described it as immediately accretive and as a “bolt-on” acquisition
- Ferrellgas (FGP) announced acquisition of Bridger Logistics, LLC for $837.5mm (press release)
- Bridger provides integrated crude oil logistics services (trucking, terminaling, pipeline, rail and maritime) across 14 U.S. states
- FGP will pay $562.5mm in cash and will issue 11.2mm FGP units to the seller
- FGP expects Bridger assets to produce $100mm in EBITDA over next 12 months (8.4x implied multiple)
- With the transaction closing, FGP announced it intends to increase distribution by 2.5%
- Will be the first distribution increase ever for FGP, which went public in 1995
- MarkWest Energy (MWE) announced plans to construct a new 200 mmcf/d natural gas processing plant in the Delaware Basin in West Texas (press release)
- The plant (in-service 2Q 2016) will support new long-term, fee-based commercial agreements with Chevron and Cimarex
- Represents a new basin for MWE
- Westmoreland Resource (WMLP) announced acquisition of Kemmerer Mine from sponsor Westmoreland Coal for $230mm (press release)
- Financed with $135mm in cash, $20mm in WMLP units, and $75mm in WMLP Class A convertible units that will PIK until converted within 12 months of closing
- Enable Midstream (ENBL) announced resignation of CEO Lynn Bourdon (press release)
- OGE Energy CEO Pete Delaney to take over
- Resignation was a surprise to the market, and ENBL units traded down on the news
- CrossAmerica (CAPL) announced distribution increase of 0.9% quarter over quarter
- The U.S. Environmental Protection Agency (EPA) released a statement saying it had found no evidence that the hydraulic fracturing process has caused “widespread systemic impacts on drinking water” (Fuel Fix)
- Findings based on a five year probe into well integrity in areas where waste water was spilled above ground
- The EPA found that there were instances where fracking-related activities related to releases that have impacted surface and ground water, but the number of documented impacts to drinking water is relatively small when compared to the number of fractured wells