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December 18, 2016

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MLP Week Thoughts: Beginning to Look a Lot Like Christmas

MLPs crossed back over “the 300” two more times this week, but finished on the good side and +1.2% on the week.  Large cap MLPs beat smaller MLPs as evidenced by the spread between the AMZ and its equal weight cousin.  Interest rates pushed higher, but yield-based equities found support while the S&P 500 traded sideways.
weekly-review_12-16-16
Oil prices bounced around, rallying on enthusiasm over the non-OPEC production reduction agreement, then fading with dollar strength and the weekly inventory report, and finally bouncing off $50/bbl to reclaim last week’s close to finish the week.  Natural gas prices slammed on the brakes on an evolving weather outlook, even though inventory report Thursday indicated a very tight market.
Implications of Election and OPEC on MLPs in 2017
I recently published a paper, available over at CBREClarion.com, where I discuss what has been a steadily improving outlook for MLPs that has yet to manifest itself in stock price performance since MLPs peaked in July.  The election and OPEC announcement have added to the positive outlook as we approach a fresh year. Please click here to read more.
whitepaper
Santa Rally
Enthusiasm for MLP prospects in 2017 may start showing up over the next few weeks.  Consistently and even in years when returns have been very negative, the last 9 days of the year tend to have a positive bias.  That period has been positive for 7 straight years.  This is a combination of general optimism, a lack of equity issuance typically during this time, and some investors trying to beat the January effect.
santa-rally
Winners & Losers
The range of returns across the sector was tighter this week than last.  AMID led the way, perhaps the successful bond offering was a vote of confidence in AMID’s merger with JPEP.  No other news among the MLPs on this chart.  Weaker natural gas prices were likely a factor in ARLP (coal producer) and CCLP (compression provider) weakness.
top5bottom5_12-16-16
top5bottom5_12-16-16_chart
Year to Date Leaderboard
Very little change in the year to date winners & losers from last week.  With just two weeks to go, I wouldn’t expect much movement among these large outliers, although the drop down names PSXP and SHLX have started to trade a bit better.
top5bottom5_12-16-16_ytd
top5bottom5_12-16-16_ytd_chart
G.P. Holding Companies and Midstream Corporations
Median GP performance was roughly in-line with MLP performance this week (+1.4% vs. +1.2% for index).  AHGP and AROC showed their sensitivity to natural gas prices, while other recent strong performers like SEMG, ETE and OKE followed through from last week’s gains.
top5bottom5gps_12-16-16
top5bottom5gps_12-16-16_chart
News of the (MLP) World
Light news week for capital markets and M&A activity, but there was no shortage of interesting news items around the sector.  DAPL future partners continue to work towards a successful close post easement.  EPD got the Pascagoula plant back online with a few weeks to spare.  And WMB elected two new board members that are very intriguing for armchair M&A speculators.
News-of-the-World
Capital Markets

  • Amerigas (APU) priced $700mm offering of 5.50% senior notes due 2025 (press release)
    • Offering upsized from original $550mm offering
    • APU will use the proceeds to tender for up to $500mm of its 7.00% Senior Notes due 2022
  • American Midstream (AMID) priced private placement of $300mm of 8.50% senior notes due 2021 (press release)
    • AMID will use the proceeds to reduce borrowings on the credit facility of JP Energy (JPEP) once the merger closes
  • Rice Midstream (RMP) filed S-3 to register 20.9mm units for unitholders that participated in RMP’s 9/29/16 private placement (filing)
  • CONE Midstream (CNNX) filed form S-3 mixed shelf registration statement to register $750mm worth of debt or equity securities for sale (filing)

Growth Projects / M&A

  • Energy Transfer (ETP) filed updated agreement for the sale of interest in the Dakota Access Pipeline to MPLX and EEP to extend the termination date to 3/31/17 (filing)
    • Original agreement called for a termination date of 12/31/16
    • Seems to indicate that (1) ETP thinks the project gets approved in 1Q, and (2) all parties continue to want the transaction to close
  • Enable Midstream (ENBL) announced new 20-year firm transportation service agreement with Oklahoma Gas and Electric (OG&E) on the Enable Oklahoma Intrastate Transmission system (press release)
    • ENBL will build 77 miles of 20-inch pipeline to support the agreement, which goes into effect in late 2018
    • The demand is driven by OG&E converting two 500 megawatt coal plants to natural gas
  • As part of its 2017 guidance release, EQT Midstream (EQM) announced $600mm of new development capital expenditures (press release)
    • EQM will design a midstream system to support EQT’s development of acreage acquired from Statoil earlier this year
    • EQT modified the midstream agreement associated with the acreage with Williams Partners (WPZ), such that EQM can now provide high pressure pipeline services above a certain minimum volume level
  • Enbridge Energy (EEP) announced open season for expansion of the Enbridge Ozark Pipeline, which transports crude oil from Cushing, OK to Wood River, Illinois (press release)
  • Spectra Corp (SE) announced its shareholders approved the merger with Enbridge (press release)
    • Merger is on track to close in 1Q 2017 following Canadian and U.S. anti-trust approvals
  • In other M&A North of the border, Inter Pipeline (TSX: IPL) announced acquisition of remaining 15% interest in the Cold Lake oil sands pipeline system for CAD $527.5mm from Canadian Natural Resources (press release)
    • Funded with a combination of CAD $350mm cash and 6.4mm IPL common shares
    • IPL CEO Christian Bayle commented on the transaction: “I’m Batman”

Other

  • Williams announced two new independent board members, including former EPD CEO Mike Creel and expert M&A attorney Casey Cogut (press release)
    • WMB’s board now comprises 11 directors, 10 of whom are independent
  • FERC issued a notice of inquiry requesting comments on how to address potential double recovery of taxes from the FERC’s current tax allowance and rate of return policies for MLPs and other pass-through entities
  • Enterprise Products (EPD) announced that its Pascagoula processing plant (offline since 6/27) has resumed operations (press release)
    • Management noted with 3Q results that the outage cost EPD $23mm in cash flow in 3Q and indicated that it would be in-service by year-end
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