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September 21, 2014

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MLP Week Thoughts: Blame Canada!

In a busy M&A and equity issuance week, MLPs bounced back with a 2.2% return vs. 1.3% for the S&P 500.  There was a wider than usual spread between performance of the cap-weighted index and the equal-weight index (up just 1.5%), which implies strength in large-cap MLPs vs. smaller cap names.
Interest rates and major energy commodity prices (oil and natural gas) saw little change week over week.  M&A fever helped drive MLPs higher this week, spurred on by announced drop down acquisitions (EEP and PBFX), implied drop down acquisitions (TCP), and third party acquisitions (LINE and VNR).
Weekly MLP Review_9-19-14
Winners & Losers
They say there’s always a bull market somewhere, and this week it was in MLPs with Canadian parents.  TCP was up 20.6% to lead all MLPs and EEP was up 10.1%.  This week’s announced drop-down to EEP was more evidence of ENB placing more strategic emphasis on its MLP than it has in the past.
The drop down acquisition potential of EEP and TCP has always existed, but the parent companies of each have not been nearly as aggressive as some of the large corporations in the US with MLPs in place (WMB or SE, for example).  Of the 14 MLPs that were publicly-traded prior to 2000, and are still trading today, EEP and TCP are in the bottom 5 in terms of last 3 years distribution CAGR.  TCP has grown at a much higher rate than EEP since 2000.
The market has been slow to give TCP and EEP credit for its drop downs, even as they each signaled more aggressive stances (TCP consistently has said TRP intends to double EBITDA in the next few years), because of lower than average distribution growth in more recent years.
EEP’s perception (and price) changed over the summer, when EEP announced a major IDR restructuring, and this week’s drop-down announcement provided additional proof of a more aggressive strategy going forward.  EEP’s actions seem to have changed the market’s perspective on TCP, so that TCP is getting an excess of credit for its potential as a drop-down MLP, without announcing any further plans.
Until very recently, investors weren’t missing much by not owning EEP and TCP.  But, in today’s market, the risk of not owning a poor performing MLP is very high, as poor performing MLPs continue to get fixed one way or another.  TCP hasn’t announced any changes, but with each increase in its unit price, the capital cycle between TCP and TRP gets a bit more virtuous.  But until its pipeline projects get approved, TRP won’t have much use for extra capital from selling assets to an MLP.
News of the (MLP) World
One MLP IPO launched this week, the first of what should be a crowded fall equity calendar.  There were also several follow-on offerings and two large upstream MLP deals.

  • CONE Midstream (CNNX) launches $350mm MLP IPO with 4.25% midpoint IPO yield (filing)
    • CNNX is jointly sponsored by CONSOL and Noble Energy, as part of their development joint venture in the Marcellus Shale
    • CNNX will own gathering assets underpinned by acreage dedications for 496,000 acres and 20-year fixed-fee gathering agreements
    • CNNX will have no debt at IPO
    • CNNX plans to grow organically (through well hookups and gathering expansion) and via drop down acquisitions from CONE Gathering, LLC (jointly owned by sponsors)
    • First down-the-fairway midstream MLP since PBF Logistics in May of this year
  • Sunoco Logistics (SXL) prices public offering of 7.7mm units at $48.46/unit, raising $373.1mm in gross proceeds (press release)
    • Overnight offering, priced at 3.0% discount to prior close
  • LeHigh Gas Partners (LGP) prices public offering of 3.6mm units at $33.99/unit, raising $122.4mm in gross proceeds (press release)
    • Overnight offering, priced at 4.0% discount to prior close
  • Viper Energy Partners (VNOM) prices public offering of 3.5mm common units at $28.50/unit, raising $99.8mm in gross proceeds (press release)
    • One day marketed offering, with a file-to-price decline of 5.2%, and traded down another 4.5% in the next trading session
    • Proceeds to be used to repay borrowings on its revolving credit facility

M&A / Growth Projects

  • PBF Logistics (PBFX) announces $150mm drop down acquisition (press release)
    • PBFX will acquire the Delaware City Heavy Crude Unloading Rack from parent PBF Energy
    • To be funded with $135mm in cash and $15mm in units issued directly to PBF
    • Asset is expected to generate $15mm in annual EBITDA (10x) and will be supported by a 7-year throughput agreement
  • Enbridge Energy Partners (EEP) announces $900mm drop down acquisition (press release)
    • EEP to acquire the remaining 66.7% interest in the US segment of the Alberta Clipper Pipeline that it does not own from Enbridge, Inc.
    • Funded with $600mm of equity issued to Enbridge and $300mm in cash
    • Purchase price represents 11x 2015E, driving immediate DCF/L.P. unit accretion of 3%
  • Linn Energy (LINE) announces swap with Exxon for mature California properties (press release)
    • LINE to trade portion of its Permian Basin acreage to Exxon in exchange for operating interests in California’s South Belridge Field
    • California properties are producing 3.4 MBoe/d (100% oil), with 10% annual decline rates
    • Exxon will receive 17,000 net acres prospective for horizontal Wolfcamp drilling in the Midland Basin
    • Swap expected to close in 4Q 2014
  • Vanguard Natural Resources (VNR) announces $525mm acquisition of natural gas and liquids properties in Colorado’s Piceance Basin from Bill Barrett Corp (press release)
    • Assets include proved reserves of 389 bcfe (79% proved developed, 79% natural gas)
    • 67 MMcfe/d of current net production, 16 year reserve life, 11% annual decline rate expected
  • Spectra Energy (SE) and Spectra Energy Partners (SEP) announce details of previously announced Access Northeast natural gas pipeline project (press release)
    • Expected to cost $3bn and be in-service by late 2018
    • Pipeline will be jointly developed with Northeast Utilities

Other MLP News

  • TransCanada gets activist attention from Third Point (Reuters)
  • TransCanada reveals that Keystone XL project costs estimates have doubled (Wall Street Journal)
    • Revealing this may make it easier to justify when the project ultimately gets cancelled
  • TransMontaigne announces new terminalling services agreement with Metroplex Energy relating to Florida refined products tankage (press release)
    • Metroplex is a subsidiary of RaceTrac Petroleum, Inc.
    • Agreement covers tanks with approximately 2.17mm bbls at 4 terminals owned by TLP in Florida
    • The tanks related to the agreement were under contract to NGL Energy as part of the acquisition of TLP’s GP, and this transaction removes that obligation from NGL


  • A positive study on the impact of fracking on water pollution (
    • Full study available here
  • A firm is considering a $6bn LNG plant that might get Galveston, Texas into the LNG game (FuelFix)
  • Warning of pending train wreck with no crude oil export ban changes from Rice University economist (FuelFix)
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