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September 7, 2014

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MLP Week Thoughts: Expanding Pipeline of Pipelines

MLPs pulled backed this week in a flat broader stock market (MLP Index -0.8% compared with +0.2% for the S&P 500).  Falling oil & natural gas prices, a large number of MLP equity offerings and general profit taking were probably a larger contributor to MLP weakness than rising interest rates.  Utilities were up this week, despite a rising 10-year US Treasury yield.
Weekly MLP Review_9-5-14
See the extensive news section for details on the numerous M&A and pipeline announcements, and on the more than $1.2bn of equity offerings this week.
I listened to many upstream company presentations this week at a conference in New York, and a clear theme I heard (particularly for northeast producers) was their need to have access to firm transportation capacity out of their operating regions.  In an environment where supply is plentiful and regional demand is scarce, producers are stepping up to support pipeline projects to reach viable markets.  Utilities have taken notice of the bottlenecks as and are capitalizing on the opportunity to secure long-term supply access at attractive rates by signing up for pipelines as well.  Companies building the pipelines (MLPs or companies that will eventually drop pipelines into an MLP) are the clear winners.
Winners & Losers
Not much rhyme or reason to the moves at high end of the MLP sector this week.  WLKP led all MLPs with a 9.8% pop this week, making its total return since IPO 39%.  High growth MLPs OILT and MPLX, and low growth high yielders EEP and NMM round out the top 5.
On the downside, notoriously volatile sand MLPs were hit particularly hard this week.  HCLP was down 8.1% (after being up 12.0% last week) and EMES (not pictured below) was down 11.4%.  NSLP announced last Friday afternoon that its Chairman was resigning from the board to spend time growing his other companies, which probably contributed to the drop this week.
It is notable that none of the 4 MLPs that executed public offerings made the bottom 5. SUSP and GLOP made the bottom 5 for the second straight week.
YTD, SUSP dropped out of the top five, replaced by OILT.  PSXP was down 5.1% this week, but maintained its top position, given that numbers 2 and 3 were down big as well.  It seems like a fair amount of profit taking happened this week at the top end of the sector.
Also, each one of the bottom 5 declined, which could also have been profit taking in names like BWP and NRP that have bounced off the bottoms they hit early in 2014.
News of the (MLP) World
MLPs came out of summer with their press release guns blazin’.  There were 4 new pipelines announced and 2 binding open seasons on previously announced pipelines.  With the exception of NGL’s smaller crude pipeline announcement, each of the potential pipelines represents multi-billion dollar investments for the companies involved.  The competition for pipeline commitments from these various regions will be fierce and fascinating.
There were also 4 follow on equity offerings for a total of $1.2bn issued this week.  The last few years, the time period between Labor Day and Christmas has seen much heavier MLP equity issuance than other time periods, so I expect this won’t be the last $1.0bn+ equity week in the next few months.

  • Summit Midstream (SMLP) prices public offering of 4.3mm units owned by Summit Midstream Partners Holdings, LLC at $53.88/unit, raising $234.3mm in gross proceeds for selling unitholders (none for SMLP) (press release)
    • Offering upsized from 4.0mm units to 4.3mm units
    • Overnight offering, priced at 4.0% discount to prior closing price
  • Memorial Production (MEMP) prices public offering of 13.0mm units at $22.29/unit, raising $289.8mm in gross proceeds (press release)
    • Overnight offering, priced at 3.75% discount to prior closing price
  • Buckeye Partners (BPL) prices public offering of 6.75mm units at $80.00/unit, raising $540.0mm in gross proceeds (press release)
    • One-day marketed offering, traded up 1.2% from filing to pricing
    • Offering upsized from 5.0mm units originally offered
    • Proceeds to be used to partially fund acquisition of 80% of Trafigura assets
    • Second offering in a month from BPL, following $199.2mm offering priced on 8/12/14 at $76.60/unit
  • Capital Products (CPLP) prices public offering of 15.0mm common units at $10.53/unit, raising $158.0mm in gross proceeds (press release)
    • Overnight offering, priced at 3.92% discount to prior closing price
  • Sunoco Logistics (SXL) files S-3 registration statement to register up to $1.0bn of common units (filing)
  • DCP Midstream (DPM) files equity distribution agreement to sell up to $500mm of common units at-the-market (filing)


  • Plains All American (PAA) prices $750.0mm of 3.60% senior notes due 2024 at 99.842% (filing)

M&A / Growth Projects

  • Buckeye Partners (BPL) announces acquisition of Trafigura’s South Texas coastal terminal complex for $860mm (press release)
    • BPL to form Buckeye Texas Partners (BTP), which will be 80% owned by BPL and 20% owned by Trafigura
    • Assets of BTP will include: a deep-water, high volume marine terminal located on the Corpus Christi Ship Channel, a condensate splitter and LPG storage complex in Corpus Christi, and three crude oil and condensate gathering facilities in the Eagle Ford Shale
    • Assets supported by 7-10 year minimum volume throughput, storage and tolling agreements with Trafigura
    • BTP will invest $240mm to $270mm through 1Q 2016 on growth projects related to the assets
    • BPL expects the acquisition will reflect an 8.5x EBITDA multiple in 2016, after completion of growth projects
  • Enable Midstream (ENBL) announces $200mm natural gas processing plant in SCOOP play (press release)
    • ENBL will construct a second new 200 mmcf/d natural gas processing facility in the rich gas region of Oklahoma known as the South Central Oklahoma Oil Province (SCOOP), near ENBL’s under construction Bradley Plant
    • Expands overall ENBL processing capacity in the Anadarko Basin to 1.685 Bcf/d
    • Plant is contracted with Continental Resources and other producer customers in the region based on existing acreage dedications
  • Boardwalk Pipeline (BWP) announces $295mm acquisition of ethylene from Chevron (press release)
    • The Evangeline ethylene pipeline system is a 176-mile interstate pipeline capable of transporting ~2.6 billion pounds of ethylene/year and is supported by long-term, fee-based contracts
    • Transports ethylene between Port Neches, TX and Baton Rouge, LA where it interconnects with the BLM ethylene distribution system
  • LRR Energy (LRE) announces $38.0mm acquisition of mature oil and natural gas properties in Oklahoma (press release)
    • Properties are located in Lincoln and Creek Counties in Oklahoma
    • 2.5 MMBoe of proved reserves acquired, 83% proved developed producing (89%)
    • Average net production of 275 Boe/d for last 6 months (through 6/30), with 4% annual decline rate expected
  • Ferrellgas (FGP) expands Eagle Ford midstream operations with acquisition of two additional saltwater disposal facilities from C&E Production, LLC (press release)

New Large Scale Natural Gas Pipeline Projects

  • Williams Partners (WPZ) announces open-season for new Western Marcellus Pipeline Project (press release)
    • New pipeline project would expand Transco interstate pipeline to provide incremental firm natural gas transportation capacity to growing markets in the Mid-Atlantic and southeastern U.S. by late 2018
    • Designed for 1-2 bcf/d of capacity from Western Marcellus and Utica supply receipt points, connecting to Transco at compressor station 165
  • Dominion, Duke Energy, Piedmont Natural Gas and AGL Resources announce JV for new $4.5-5.0bn Atlantic Coast Natural Gas Pipeline (press release)
    • Pipeline would extend 550 miles from Harrison County, WV through Virginia with an extension to Chesapeake, VA and then south through central North Carolina to Robeson County
    • The JV would be owned 45% by Dominion, 40% by Duke Energy, 10% by Piedmont and 5% by AGL Resources
    • All 4 partners plan to be customers of the pipeline under 20-year contracts, along with one additional customer, PSNC Energy
    • Initial capacity is expected to be 1.5 bcf/d, with an in-service date of 2018
    • Project could end up being 2.0 bcf/d or more with additional customer demand

Open Seasons for Previously Announced Pipeline Projects

  • EQT Corporation (EQT, GP of EQM) and NextEra Energy announce binding open season for capacity on Mountain Valley Pipeline project joint venture (press release)
    • Mountain Valley Pipeline project will connect EQM’s Equitrans Pipeline system in West Virginia to Transco pipeline at compressor station 165 (yes, the same connection point as the WPZ pipeline above)
    • 1.5 bcf/d of capacity on the pipeline has been secured already, but EQT is seeking additional commitments for the pipeline, which is expected to have at least 2.0 bcf/d of capacity
    • This pipeline looks like it will run basically alongside the Williams Western Marcellus Pipeline discussed above
  • Kinder Morgan (KMP) announces binding open-season for previously announced UTOPIA (Utica-to-Ontario Pipeline Access) NGL pipeline project (press release)
    • 240-mile, 12” pipeline from Ohio to Windsor, Ontario, Canada
    • Pipeline will initially have capacity to transport 50,000 bbls/d of ethane and ethane-propane mix
    • Expected to be in-service by early 2018

New Oil Pipelines Out of Niobrara

  • NGL Energy Partners (NGL) announces binding open season on joint venture crude oil pipeline called the Grand Mesa Pipeline with initial capacity of more than 130,000 bbls/d (press release)
    • Pipeline will originate in Weld County, Colorado and will terminate at NGL’s Cushing, OK terminal
  • Enterprise Products (EPD) announces binding open season for proposed new pipeline from the Bakken through the DJ Basin in Colorado down to Cushing (press release)
    • 30-inch diameter pipeline would run 1,200 miles to the Cushing hub in Oklahoma
    • Initial capacity of 340,000 bbls/d, expandable to 700,000 bbls/d, with the capability to transport up to 6 grades of crude oil and products, including condensate
    • If demand is there for the pipeline, it would be built in stages, with the DJ Basin to Cushing section coming online in 4Q 2016, with the rest of it in service by 3Q 2017
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