Jul 13th, 2014
MLP Market Post
Between the end of last week and the beginning of this week, the Alerian MLP Index had 4 straight negative trading days where it declined 3.0%. The index recovered 1.0% Wednesday to Friday, to finish the week down 0.6%, slightly ahead of the S&P 500. The Equal Weight MLP Index was down twice as much as the MLP Index, which means smaller MLPs on average underperformed this week.
Interest rates were down, perhaps helping the defensive trade of utilities to outperform. MLPs had the tailwind of lower rates and the headwind of dropping natural gas and oil prices. Heading into earnings season, investor focus should shift back to fundamentals (including commodity prices), and maybe that contributed to MLP underperformance relative to utilities.
The last time the index had 4+ days of declines was the 5 days in a row of declines from March 6 to 13th of this year, so it’s been a while, but it tends to happen at least every few months, even in very strong years for MLPs.
Pullbacks for MLPs have been rare the last several years, and it seems like the sector’s investor base has expanded substantially in between each new pullback, so it’s always interesting to see which MLPs outperform in a sell-off. Below is a chart of the bottom 10 and top 10 performers during the 4 day selloff.
It’s quite a mix in both columns, but of the top ten, I see them as skewing smaller in terms of trading liquidity and public float. Names like NGLS, OKS, EPB, and EEP in the bottom 10 column all have more trading volume and liquidity than any of the top 10 performing MLPs, with the possible exception of BWP. In an increasingly institutional market, when selling happens en masse, names that institutions can sell easily probably get sold first. Food for thought as you build your MLP portfolio.
My readers aren’t fazed by the recent very short pullback, and remain optimistic. 84% of all respondents to my poll question last week responded yes to the question: “Will the Alerian MLP Index make another new all-time high before the year is over?” Given that we sit just 2.1% away from the all-time high, a new high point is certainly possible this year, this quarter and this month even.
Winners & Losers:
VLP went from first last week to worst this week, dropping 7.5% to take the bottom spot. Other high flying sand MLP HCLP and drop-down growth stories GLOP and WNRL took a tumble this week as well, as it seemed the market was quick to sell winners. Buyers opted for higher-yielding MLPs like CMLP and NS, and less high flying drop-down growth stories ENLK and SUSP, all of which made the top 5 this week. Also, the market seemed to like GLP’s foray into Texas with its JV with KSU for a new terminal.
PSXP is still way out in front for the year, followed closely by 4 other high distribution growth MLPs. GLOP dropped out of the top 5, and HCLP dropped two spots, pushing TEP and EQM up the ranks, and making room for OILT to rejoin the top five. On the downside, EROC dropped to second worst performing MLP, and CMLP inched higher.
News of the (MLP) World
Another fairly quiet week of MLP news, as is to be expected heading into earnings season. The Kinder Morgan complex kicks it off on Wednesday. We got a few early distribution announcements this week, and those will pick up their frequency next week as well.
- Memorial Production (MEMP) prices public offering of 8.6mm common units at $22.50/unit, raising $193.5mm in gross proceeds (press release)
- Overnight block trade, priced at 5.9% discount to prior close
- Summit Midstream (SMLP) prices public offering of $300mm of 5.5% senior notes due 2022 at par (press release)
M&A / Growth
- NGL Energy (NGL) announces offer to acquire outstanding units of TransMontaigne Partners (TLP) in transaction valued at $564mm (press release)
- NGL already owns 20% of TLP units as a result of the acquisition of TLP’s G.P. last month
- Offer is to exchange TLP units for NGL units on a 1:1 basis
- NGL Energy (NGL) announces development of 5 salt water disposal facilities in the Eagle Ford and Permian Basins (press release)
- New facilities include 6 recently completed disposal wells for combined cost of $83mm, located in the Eagle Ford shale and Permian Basin
- Facilities are expected to produce $16mm in annual EBITDA, implying a multiple of 5.2x, appropriate for quick payback, low barriers to entry assets like this
- Global Partners (GLP) and railroad operator Kansas City Southern announce plans to jointly develop a unit train terminal in Port Arthur, TX (press release)
- The waterborne terminal will serve initially as a destination for heavy crude from Western Canada utilizing 340,000 barrels of initial storage capacity
- Facility will have an initial capacity of 2 unit trains per day
- Teekay LNG Partners (TGP) announces acquisition of interests in 4 LNG carriers to be constructed and delivered between late 2017 and early 2019 (press release)
- Each vessel will have 174,000 cubic meters of LNG carrying capacity
- Interests acquired from BG Group
- Vessels will operate under 20-year contracts with a subsidiary of BG Group
- BridgeTex Pipeline, a JV between Magellan Midstream (MMP) and Occidental Petroleum Corp, announces supplemental open season for additional transportation commitments (press release)
Industry / Other
- Andrew Atterbury joins the board of Western Refining Logistics (WNRL) (press release)
- Former Inergy executive (with impeccable timing), and an mlpguy.com reader
- Crestwood Midstream (CMLP) has underground pipeline leak of an estimated 24,000 barrels of saltwater and condensate mix on a reservation in North Dakota (Fuel Fix)
- Spill apparently had gone undetected for several days
Jul 5th, 2014
MLP Market Post
MLPs had an up and down week. The Alerian MLP Index was up 1.1% Monday and Tuesday to a new all-time high, then down 1.4% Wednesday and Thursday to finish the short trading week down 0.3% overall. Positive jobs data pushed interest rates up in the back half of the week, putting pressure on all yield-based securities, particularly utilities (UTY was down 3.1% from Tuesday’s closing price). The broad equity market continued to march higher, with the S&P 500 up each day of the week, and finished up 1.2% since last Friday.
It’s hard to read much into the price action of 1.5 days of trading in the middle of the summer, particularly after an uninterrupted 4 month rise in MLP indices, but it’s not unreasonable to think that the falling rate tailwind could turn into the rising rate headwind the market thought it would be at the beginning of 2014.
This week could have been the turning point, or it could have been big MLP buyers taking the back half of the week off to beat the traffic to the Hamptons. Or maybe all the little MLP buyers were just too busy mourning the end of U.S. Soccer’s brief World Cup run, performing final stomach stretching exercises in preparation for the Nathan’s Hot Dog Eating Contest, or decorating those last few dozen American flag cupcakes. Maybe Monday everyone will get back to the profitable business of buying MLPs. Maybe.
What do you think?
June in the Books
We passed through another month early this week, the best month so far this year, with the Alerian MLP Index producing 5.9% total return. The positive June marks the 4th straight positive month for the index, during which time the MLP Index produced 15.8% total return. Also noteworthy, it was the 5th straight positive June for the index.
The second quarter produced 14.2% total return for the index, which was 5th best in the last 10 years (1Q 2013 was the best ever at 19.7%, the last quarter that produced double digit positive returns). Turning to July, last year was negative, but July has on average been the third best month of the year for the MLP Index (at +3.4%), behind January and April.
Winners & Losers
Drop-down growth MLPs popped this week, led by VLP’s 10.9% increase in 3.5 days, followed by TEP and RRMS. TEP’s large distribution increase announcement probably helped its land it among the top performers.
FGP, the MLP with the longest running distribution stream without a single distribution raise (nearly 20 years), was down the most this week. FGP is the most bond-like of all MLPs because of its flat distribution expectation, so it’s a good barometer of the impact of interest rate movements on MLPs. EEP and BWP retraced some of their big gains from last week, while RRMS landed among the top 5 for consecutive weeks.
For the year so far, TEP returned to the top 5 this week, and LGP returned to the bottom 5 this week, but no changes among the top or bottom 4.
News of the (MLP) World
I normally don’t list out when deals close, because it can be confusing as to what’s been announced and what hasn’t, and it is typically the announcement of the deal that moves stock prices around. But this week seemed like a nice quiet week for MLPs to clean up their previously-announced deals and get them all closed, so it’s worth noting them all together. The following deals closed this week:
- RGP acquisition of EROC’s midstream business
- NGL acquisition of TLP’s GP
- WMB acquisition of ACMP’s GP
- MEMP acquisition
- QEPM drop down acquisition
- TLLP drop down acquisition
- VLP drop down acquisition
- Western Gas Equity (WGP) prices public secondary offering of 5.0mm units at $60.19/unit, raising $301.0mm in gross proceeds for selling unitholder (press release)
- Units sold by parent Anadarko Petroleum Corp (APC)
- APC has a multi-year goal of selling ownership interest down but to 20% from 88.7% after the offering
- APC’s current holdings worth $11.7bn, would need to sell $9.1bn to get to 20% at current prices, which would take 9+ years if APC sold $1.0bn a year
- Overnight offering, priced at 4.0% discount to prior close, and units traded up 1.0% from pricing to close in the next trading session
- Hoegh LNG Partners (HMLP) files initial registration statement for MLP IPO of up to $150mm (filing)
- HMLP was formed by Hoegh LNG Holdings (Oslo Bors symbol: HLNG)
- Initial assets include interests in 3 floating regasification unit (FSRU) vessels operating under long-term time charters with average remaining contract life of 17 years
- HMLP will have the right to purchase additional vessels from Hoegh over time
- Next 12 months EBITDA projected to be $69.2mm,with $38.2mm of cash available for distribution
- Full incentive distribution rights with maximum tier of 50%
M&A / Growth
- Linn Energy (LINE) announces $2.3bn acquisition of properties from Devon Energy (press release)
- Assets include 900,000 acres, with proved reserves estimated to be 1.3-1.5 Tcfe (75% PDP) with current production of 275 mmcfe/d (80% natural gas) and with ~14% annual decline rates
- Properties located in the Rockies, Mid-Continent, East Texas, North Louisiana and South Texas
- To fund the acquisition, LINE plans to sells its properties in the Granite Wash and Cleveland plays, which carry production declines much higher than the assets to be acquired
- Cheniere Energy (LNG) announces new contracts with Woodside and Pertamina to supply LNG from planned Corpus Christi LNG facility
Other / Industry
- Tallgrass Energy (TEP) announces $0.38/unit distribution, a 16.9% increase quarter over quarter (press release)
- $0.22 annualized increase (TEP had announced at least a $0.20 annualized increase at the time of its recent drop-down acquisition)
- Texas oil production above 3mm barrels/d, making its production close to that of Iraq (Fuel Fix)
- Includes a chart showing how incredible the growth out of Texas and North Dakota has been relative to overall North American production
- North Dakota may require production curtailments if the amount of flared gas exceeds the state’s gas capture target (Oil & Gas Journal)
- No exceptions for wells that are connected to gas gathering systems with insufficient capacity
- Cheniere Energy (LNG) decides not to ask shareholders to approve another 30mm shares (worth around $2.2bn) to executives, with questions about last year’s 25mm shares remaining outstanding (Fuel Fix)
- Two Democratic Senators write a letter calling for a more extensive review of the private rulings issued last week regarding stabilized condensate run through a distillation tower (Fuel Fix)
Jun 29th, 2014
MLP Market Post
MLPs had their best week of the year this week, with the Alerian MLP Index posting 2.7% in total returns, compared with flat S&P 500 and +0.9% for utilities. MLPs are closing in on a 4th straight positive month, which would make it 9 positive months out of the last 10.
Year to date, the MLP Index has doubled the price change of the S&P 500, and is gaining on utilities, which have seen their prices rise 14.4% this year so far, on lower than expected interest rates. Looking back 12 months, however, the S&P 500 still has the edge at 21.6% price change vs. 14.2% for the MLP Index.
Falling yields have been a major tailwind for the sector in 2014, but there are plenty of sector-specific catalysts that could drive MLPs higher the rest of the year, including MLP mergers/consolidation, asset M&A, new project activity and changes in regulation (e.g. crude oil export restrictions). Last week, consolidation was a major driver (with WMB/ACMP and ETE/TRGP news), while this week it was new pipeline developments and the allure of condensate exports that seemed to send MLPs higher in a flat broader market.
The Obama Administration, through the Commerce Department, took what many interpreted to be the first step towards loosening of crude oil export restrictions this week, by allowing exports from EPD and Pioneer Natural Resources of condensate that has been minimally processed in a distillation tower, as first reported by the Wall Street Journal. A relief valve for growing condensate volumes should be a positive for MLPs, but should be a headwind for refinery operators that rely on a wide spread between domestic and international oil prices. There were several articles at Fuel Fix that explained the details of the approval and some of the implications (Condensate export approval, Impact on refiners, Eagle Ford condensate).
Winners & Losers
HCLP was the leader this week, buoyed by the announcement of a contract extension with Halliburton for frac sand through the end of 2018. It was HCLP’s second straight week in the top 5.
Amid the flurry of pipeline announcements, BWP and ENBL didn’t announce anything, but both have long-haul inter-state natural gas pipeline assets. EEP continued upward following its IDR restructuring and its Sandpiper oil pipeline project reminder. RRMS was up on its drop down and upward revision to guidance announcements. On the downside, smaller refinery-sponsored logistics MLPs PBFX and WNRL were both down in a week that saw broader weakness in refinery stocks following the condensate export buzz.
Year to date, visible growth is getting disproportionately rewarded relative to other MLPs. HCLP replaced TEP among the top 5 this week, and EXLP replaced USAC. What’s striking is how few MLPs have produced negative absolute returns year to date, with the fifth worst MLP down just 2.0% including distributions. MLPs overall have done very well, with the Alerian MLP Index up 15.6% in 6 months.
News of (MLP) World
The demand in the IPO market for yield product seems limitless. NextEra was the latest yield-based equity to have a huge IPO pop this week, and second consecutive yieldco to pop around 30% on its debut, despite IPO yields that ratchet lower with each deal. The MLP IPO backlog officially added another filed MLP, but it was one the market was expecting. Maybe July 4th will slow down the torrid pace of MLP news we’ve had this month. It’s usually a quiet week for capital markets, but M&A is always a wild card, with bankers and executives eager to finalize deals before the long weekend.
- Knot Offshore (KNOP) prices public offering of 4.6mm units at $28.43/unit, raising $130.8mm in gross proceeds (press release)
- Overnight offering priced at 4.9% discount to prior close
- NextEra Energy Partners (NEP) prices IPO of 16.25mm units at $25.00/unit, raising $406.3mm in gross proceeds (Bloomberg)
- Priced at the high end of the range of $23.00-$25.00, which had been raised $4.00 from $19.00-$21.00/unit
- Opened at $32.55 (+30%), closed up 28% on the day, very similar to Abengoa Yield (ABY) a few weeks ago
- CVR Refining (CVRR) prices public secondary offering of 6.5mm common units at $26.07/unit, raising $169.5mm of gross proceeds for CVR Refining Holdings (press release)
- Overnight offering priced at 3.9% discount to prior close, CVRR traded down 4.9% from pricing in the following session, but that may have been the result of weakness across publicly-traded refinery operators following the condensate export announcement
- Teekay Offshore (TOO) files F-3 (shelf registration) to register up to $500mm of common units for sale (filing)
- Transocean Partners (RIGP) files initial registration statement to raise up to $350mm in MLP IPO (filing)
- Formed by $16bn market-cap public company Transocean (RIG)
- RIGP will own and operate offshore drilling rigs
- Initial assets will include 51% interest in the companies that operate 3 ultra-deepwater drilling rigs, currently operating in the Gulf of Mexico
- Rigs are operated under long-term contracts with Chevron and BP, average remaining contract life of 4.2 years
- RIGP will have right of first offer on the remaining interest in the 3 initial rigs and on 4 additional rigs listed in the S-1, plus any other rig that RIG puts into service with more than 5 years of contract life
- RIGP is expected to produce $110mm of cash available for distribution in first 12 months post-IPO
- Full incentive distribution rights up to 50% to be held by RIG
- QEP Resources files Form 10 registration for spin-off of QEP Field Services (press release)
- New entity will be renamed Entrada Midstream and will trade under ticker EMID
- Entrada assets will consist of:
- 100% of the IDRs and a 55.8% L.P. interest in QEP Midstream (QEPM)
- Interests in gathering, processing, and fractionation systems in the Uinta and Green River Basins
- QEP’s Haynesville gathering system not included in the spin-off
- First step in spin-off process that was first announced in December as a direct response to activist investor pressure
- Williams Partners (WPZ) prices $1.25bn worth of senior notes (press release)
- $750mm of 3.90% senior notes due 2025 at 99.69% of par to yield 3.91%
- $500mm of 4.90% senior notes due 2045 at 99.229% of par to yield 4.94%
- Rose Rock Midstream (RRMS) prices $400mm of 5.625% senior notes due 2022 at par (press release)
- NGL Energy (NGL) prices $400mm of 5.125% senior notes due 2019 at par (press release)
- Offering upsized from $350mm for the rare 5-year notes offering
M&A / Growth
- Energy Transfer (ETP) announces natural gas pipeline project connecting Marcellus and Utica supplies via interconnections to Gulf Coast and Canada markets (press release)
- 2.2bcf/d capacity, expandable to as much as 3.25 bcf/d – a very big pipeline
- ETP has anchor commitments from producers American Energy – Utica, Antero Resources, and Range Resources Corp
- ETP has launched a binding open season to secure additional commitments
- Pipeline is expected to be in-service in stages starting in 4Q 16
- Energy Transfer (ETP) announces new 1,100-mile crude oil pipeline from Bakken production area in North Dakota to Illinois, where it will connect with ETP’s Trunkline pipeline to gain access to the Gulf Coast (press release)
- Bakken pipeline will be in-service by the end of 2016, matching the timeline of the conversion of the Trunkline pipeline from natural gas to crude oil service
- Affiliated MLP Sunoco Logistics (SXL) may be a significant equity participant in the pipeline
- Trunkline will feed the Nederland crude oil terminalling facility operated by SXL along the Gulf Coast
- ETP also plans to build a rail facility in Illinois to provide rail access to East Coast refineries for Bakken Crude oil
- Enterprise Products (EPD) announces a 1,200-mile long, 30-inch thick pipeline to connect Bakken oil production to Cushing, OK (Reuters)
- No official news release listed on EPD’s website and no filings with the SEC discussing the topic this week to confirm or add more color
- Rose Rock Midstream (RRMS) announces acquisition of remaining 1/3rd interest in parent Semgroup’s 51% stake in White Cliffs Pipeline for $300mm (press release)
- White Cliffs is a crude oil pipeline running 527 miles from Colorado to Cushing, OK
- Funded with $114mm of borrowings under RRMS’s credit facility
- $182mm of equity issued to Semgroup, including $62mm of Class A units that do not receive a distribution and are convertible to common units once White Cliffs Pipeline achieves 125,000 bbls/d of volume
- RRMS and SEMG both raised EBITDA and distribution / dividend guidance as a result of the transaction
- Tesoro Logistics (TLLP) announces acquisition of certain terminalling and pipeline assets from parent Tesoro Corp (TSO) for $270mm (press release)
- Funded with $243mm of cash and borrowings and $27mm worth of equity back to TSO
- Private company Southern Star Central Gas Pipeline announces open season for a pipeline to connect the SCOOP are of Oklahoma with the Bennington Pipeline Hub in Oklahoma (press release)
- Southern Star Central is owned by Morgan Stanley Infrastructure Partners
- Enbridge Energy (EEP) announces that its $2.6bn Sandpiper Pipeline project to provide crude oil transportation out of the Bakken received a key permit to begin construction of the pipeline (press release)
- Not much incremental information about the project in this press release. It seemed to be EEP’s way of reminding the market that it also has a Bakken crude pipeline project that is moving forward