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September 14, 2012

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Brief Week Thoughts: MLPs Towed Higher

The MLP total return index closed at all-time highs for the second straight week, helped by stimulus announcement from the Fex that met the market’s lofty expectations and sent the S&P 500 to fresh multi-year highs.  Interest rates on treasuries rose 21 basis points, which hasn’t yet proved to be a drag on MLPs.  Oil and natural gas prices were up, but natural gas (+10.3%) was up much more than oil, and major NGL component prices ethane and propane were down week over week.  Gold was up 2.0%, but still far away from its 52 week high from a year ago (9/14/11).  So, the market and investors got what they wanted this week, even if Apple fan boys are complaining that the newest iPhone wasn’t shiny enough or wasn’t able to automatically mow the lawn (yet).

In the “Back to the Future” series, there are several instances of when Marty McFly grabs onto a car and gets pulled on his skateboard (and hoverboard later).  This also happened in my preferred 80s skateboarding movie “Gleaming the Cube” starring Christian Slater, but I couldn’t find a picture of that.   Basically, MLPs pulled this move this week, grabbing a hold of the jubilant market.
Expect MLPs to move higher as long as the market does, but I expect that the defensive nature of MLPs will cause it to underperform if this risk-on fervor continues, especially if interest rates rise another 50 basis points or so.  The Fed is doing its best to hold rates low through 2015, so whenever this broader market rally loses steam, if rates remain low, MLPs should start to outperform again.  Oil strength should continue to move higher in the short term as it has in the past when the Fed launched QE’s.  At some point declining oil demand and growing supply will come into play again, but for now oil and gold are moving higher.

I plan to be brief this week, as I have work for my paying day job to do this weekend, but I will do a separate post with pictures from the R.W. Baird-hosted Permian Basin field trip I drove a combined 11 hours to Midland and back to attend this week.  For now, I’ll just post this one picture of the 64 ounce cup I bought at a Stripes gas station on the way back.  If you’re reading this in Manhattan, I’m not sure if this soda cup is legal to even look at…  Stripes is owned and supplied by Susser Holdings, which has launched an MLP IPO (with a 8.75% midpoint yield) expected to price next week.  I hadn’t been to a Stripes or seen one until this week, when I saw probably 25 in between Austin and Midland.

It was a busy week for MLP news.  There were another 3 public equity offerings (EPB, VNR and TOO) and 1 private placement (XTEX) raising a combined $688mm this week.  There was also one fresh ATM equity distribution filing (PAA).  M&A news includes CHK’s $2.7bn  sale of midstream assets to Global Infrastructure Partners (ACMP’s GP), TLLP’s $210 drop down acquisition (from TSO) of Long Beach Marine Terminal and Los Angeles pipeline assets, and Summit Midstream (in registration to go public) acquisition of Piceance and Uinta gathering and processing assets from ETP.
Winners & Losers

Of the 3 equity deals this week, only one made the bottom 5 this week.  EPB in fact traded up 4.4% from its equity offering price to close the week almost flat.  In the top 5, it was 3 oil focused midstream MLPs and RGP and NRP. NRP has been on a solid run from its 52-week low reached on August 3rd.

No change in the members of the bottom 5 for the year this week.  In the top 5, OILT displaced HEP this week, and RRMS jumped into the lead after a down week from CLMT.

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