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September 6, 2015

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MLP Week Thoughts: A Little Too Quiet

The see-saw action for MLPs continued this week, with the Alerian MLP Index giving back half of last week’s gains, which had made up for the prior week’s losses. MLPs did continue their run of outperformance relative to the S&P 500, which was down 3.4%. Friday’s weaker than expected employment report, combined with light trading volume and skittishness in advance of a long weekend contributed to broad market weakness. Oil prices saw reduced volatility this week, and finished higher than $46/bbl, up which helped drive MLP outperformance.
Weekly MLP Review_9-4-15
The EIA’s production report released Monday showed June production declined for the second straight month, which helped send oil higher. Also, the rig count declined for the first time in 6 weeks. There is still work to do on the supply side, with inventories elevated, but oil prices have gained a little momentum ahead of a seasonal slowdown for refineries.
Shhh…Did You Hear Something?
Although most of you have probably sent your kids back to school by now, my kids don’t start until this week. I’ve spent many hours this summer trying to wrangle my three kids, and whenever they are all three playing in the next room, it’s rarely quiet. Any time the noise dies down, my default is to assume something nefarious is afoot. The investors that were working this week seemed to take that stance.
It’s hard to read much into a thin trading week with no news at the end of the summer, but early September trading is encouraging for MLPs, at least on a relative basis. Conference season kicks off next week with a major energy conference that will offer the latest commentary from management teams of producers, midstream operators and services companies. That commentary may help sentiment on energy.
Some concluding news on pending M&A would have been nice this week. M&A announcements may pick up after Labor Day, however, potentially sparking interest in the MLP sector. On the other hand, recent stabilizing MLP fund flows should get tested by equity offerings soon. The net of all of the above may leave MLPs rudderless for a while longer, but downside seems limited for MLPs after the re-re-rating of the sector the last few months to reflect an “even lower for even longer” outlook for commodity prices.
Status Update
MLPs closed August with a 4th straight negative month, which is only the third such streak ever for MLPs (the other one being the 5 month losing streak from September 2014 to January 2015). MLPs are due for a positive month, as it seems like MLPs have priced in a pretty dire outlook at this point.
Status Update_8-31-15
Based on Bloomberg data we track, fund flows into MLP products were negative again in August (around -$200mm), after positive fund flows for 5+ years prior to July. For the MLP capital markets to re-open and function properly, funds flows need to turn around. Absent fund flows equity deals will need to be funded with sales of other MLPs, adding additional friction to how those offerings trade.
Looking ahead, the MLP Index has a varied history in September. Average returns in September are +0.2%, with 11 positive and 8 negative months the last 19 years. However, when August is a big down month, September tends to be positive. The MLP Index has declined more than 2% in August 6 times. 5 out of the 6 times that happened the Index was positive in September, with average gains of 4.4% for those specific September instances. So far, September seems to be trending more positively for MLPs than recent months, with MLPs beating the S&P 500 over the last 30 days, but volumes have been light given how late Labor Day is this year, so it’s hard to read much into recent trading.
Winners & Losers
Volatile small cap non-pipeline MLPs dominated the top and bottom 5 this week. No news on the WMB sales process was good news for WPZ (and bad news for ETE) this week, as WPZ was the best performing midstream MLP. I guess the reasoning is that the longer we have to wait for a deal, the more likely WMB does the original deal to buy itself. NGLS and VLP also outperformed.
HEP did have news, including 2 acquisitions announced at its analyst day Thursday, but the market sold that news pretty hard Friday. HEP finished down 7.2% for the week. Other liquids midstream players were underperformers, including PSXP down 8.9% and EEP, NGL, MPLX all down 5%+.
Year to date, VLP popped up into the top 5, replacing HEP. CCLP declined from the #2 spot, but managed to hang on to a spot in the top 5. Also of note, a midstream MLP has joined the bottom 5 (SXE).
GP Holding Companies
There were only 2 positive GPs this week, and the average of all GPs underperformed by quite a bit. ETE and SEMG were each down 6%+.
News of the (MLP) World
Slowest news week all year. It has now been more than a month since the last public equity offering by an MLP. I expect that to change next week.
M&A / Growth Projects

  • Holly Energy Partners (HEP) announced two acquisitions in conjunction with its analyst day this week, including:
    • $62mm drop down acquisition of refinery processing units, backed by 15-year tolling agreement with its sponsor, HollyFrontier Corp (press release)
    • Acquisition of 50% interest in Frontier Pipeline Company from affiliate of Enbridge, Inc. (press release)
  • Warburg Pincus-backed private company Navitas Midstream announced acquisition of certain Midland Basin gathering and processing assets from DCP Midstream, LLC (press release)
    • Assets include 1,000 miles of low gathering pipelines and one 60 mmcf/d processing plant
    • This asset sale wasn’t touted on DCP Midstream’s website, but may be a part of the solution DCP Midstream, LLC’s sponsors are working on


  • CSI Compressco (CCLP) CFO James Rounsavall resigned (filing)
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