December 22, 2012
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The Alerian MLP Index was up 2.3% this week, including 1%+ days Tuesday and Wednesday, to snap the two week slump MLPs have seen since the beginning of December. At this point, the MLP Index is down 2.5% for the month of December, but remains up 5.5% for the year (all of that total return coming from distributions as on a price basis the index is down for the year). Barring a big week, MLPs will finish December negative, making it two straight negative months to finish the year, which hasn’t happened since 2008 (also the last time we finished with one negative month to end the year).
MLPs were helped in their outperformance this week by strength in oil, natural gas and NGL prices. Both propane and ethane had strong weeks, around +10% each. Ethane’s bounce came off of multi-year lows, and no matter if it bounces another 10% by the end of the year, it will still have been a very rough year for NGLs.
Prior to Friday, when MLPs got fiscally cliffed again, MLPs had been up 3.3% for the week, which would have been the best week since late June. But we’ll take +2.3% any week. Given that we will see no more equity this year, and given the underperformance in 2012, I expect to see MLPs float higher in the last week and close the year roughly where they were at the end of November, if not slightly less. Many more thoughts on 2013 next week.
Gold was down 2.2%, and coincidentally is +5.5% year to date just like the Alerian MLP Index. Gold is viewed as an inflation hedge or hedge against monetary Armageddon, neither of those things happened in 2012, and gold hasn’t done much of anything this year. MLPs have been a pretty good hedge against anything the last 20 years or so, and they remain one of the most attractive yield plays out there. Gold doesn’t yield anything, but owning it does yield some warm and fuzzy feelings and helps you sleep well at night, even if its a little uncomfortable poking up from inside your mattress.
With only 5 trading days left, the MLP Index is still trailing the broader stock market by more than 1000 basis points year to date, but is tied with gold at +5.5%. The unweighted average of variable distribution MLPs and GPs both have produced higher total returns than other MLPs and the S&P 500. 2012 will be remembered by me as the year of the variable distribution MLP. Sure some of them launched last year, but the sector really took off in 2012, on the back of strong fertilizer and refining margins.
Winners & Losers
GLP led the winners this week, which were predominantly smaller, more thinly traded MLPs that were eager for a bounce on MLP strength. PVR was up on news that it would be replacing XTEX in the Alerian MLP Infrastructure Index this Friday. Most of the gains were just getting back to even. After GLP’s big week, it closed at $25.44, the same price it closed at on November 23rd.
On the downside, NRGY was down all week on huge volume after it was announced that it would be removed from the Alerian MLP Index on Tuesday. The change was set to happen after the market closed Friday, and on Friday NRGY was up on big volume. XTEX followed the same pattern, finishing second to last on the week after the announcement of its removal from the AMZI. On the flipside, HEP didn’t see a huge bounce from the news that it would be included in the Alerian MLP Index after this Friday, but it was up 5.7% this week.
Year to Date Winners & Losers
Barring some really funky trading next week, Calumet Specialty Products (CLMT) will be the top performing traditionally structured (non-variable) MLP in 2012, following the trend mentioned above of refining strength. OXF is by far the biggest loser of 2012, extending its lead with another big drop this week. OXF is joined on the bottom 5 by two other coal MLPs (one of which cut its distribution in 2012: RNO). Also in the bottom five are NRGY (which also had a distribution cut in 2012) and CMLP (which suffered from low natural gas, NGL prices, and low drilling activity in the Barnett Shale).
News of the (MLP) World
With the MLP capital markets closed for the rest of the year, there were no debt or equity transactions. There were many M&A announcements, growth project announcements and even a few corporate reorganizational announcements. Typical year end clean up stuff for the most part. Cheniere’s announced agreement with Total and the subsequent Bechtel contract announcement were more checkpoints on CQP’s very long LNG export development path. ETE / ETP’s announced sale of the Southern Union utility assets for $1.035 billion was another checkpoint on that MLP family’s path towards digesting its huge M&A activity in 2011 and 2012. Caiman provided more details on its Caiman Energy investment.
M&A / Growth Projects
Corporate Announcements