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July 26, 2015

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MLP Week Thoughts: Forced Majeure

The MLP Index declined another 4.6% this week after a 2.7% decline last week.  MLPs are on track for a third straight negative month, unless there is serious follow-through next week to Friday’s gains next week.  It’s hard to bet on that when Friday was the first positive day following a 9.5% decline in the AMZ over 7 straight negative days.  This week’s negative price action game in a rough week for U.S. equities in general with the S&P 500 down 2.2% and utilities down 2.6% (despite lower interest rates).  Oil prices declined sharply and closed the week well below $50/bbl, but still down just 9.6% this year.
Weekly Review_7-24
Friday’s rally came despite another negative day for oil prices, which was nice to see and probably reflective of the flurry of distributions increase announcements overnight Thursday and stable earnings from the two midstream MLPs that reported.  Friday was also perhaps, possibly helped in some way by the tirade Jim Cramer went on his show regarding MLPs and forced liquidations (click here to about it).

As usual, Cramer didn’t get all the facts right, but directionally, this week’s negative action did feel desperate and representative of forced selling.  On the other hand, it is tough to distinguish forced selling from regular selling though.
The bottom line is the sector needs regular buyers, and forced buying from subscriptions into open end products.  To get those investors to come back and for MLPs to sustain a rally, the market probably needs oil prices to stop falling and visibility into an improved commodity price outlook for 2016. In the interim, perhaps more solid MLP earnings and distribution growth rates next week can stem the tide of MLP sellers.
Winners & Losers
The biggest winner of the week was SXCP on a well-received earnings report, sponsor dropdown and 3rd party acquisition.  Among other top performers, there was no real trend.  HCLP was the worst performer for the week after announcing a 30% distribution cut while upstream MLPs continue to pop up in the bottom 5.  DKL dropped 15.2% this week and was down 21.0% in 8 trading days on no news, before gaining 1.7% Friday to stop the bleeding.
On the YTD chart, DKL fell out of the top 5, replaced by BKEP.  Notable when looking at the winners how short the list is of MLPs with double digit positive returns this late in the year.  SXCP climbed out of the bottom 5 after a strong week and is replaced by EVEP.  Now all 5 biggest MLP losers are either coal or E&P MLPs.
General Partner Holding Companies
Performance for GPs was negative across the board.  After last week’s M&A fueled rally, OKE and SEMG more than gave back last week’s gains and EXH sank after pulling a notes offering and delaying the international business spinoff.
News of the (MLP) World
It was a light news week.  There were no MLP equity deals.  There was action in the yieldco sector, however. Over the last couple of years, yieldco’s have attempted to mold themselves in the image of MLPs, which has probably led to some poaching of the MLP investor base.  So, add $1.3bn+ of yieldco equity to the list of MLP trading headwinds this week.
Capital Markets

  • EQT Midstream (EQM) files equity distribution agreement to sell up to $750mm worth of units at the market (filing)
  • Yieldco deals:
    • Terraform Global IPO of 56.6mm shares, seeking to raise $1.1bn at the midpoint $20.00/share price (prospectus)
    • Pattern Energy Group, Inc. priced public offering of 5.4mm shares at $23.00/share, raising $125mm in gross proceeds (press release)

M&A / Growth Projects

  • EQT Midstream (EQM) announced agreement with Range Resources to develop a natural gas header pipeline expected to cost $250mm (press release)
    • The 32-mile pipeline, expected to have 0.5 bcf/d of capacity, will support Range’s dry Marcellus and Utica gas development and is supported by a long-term firm capacity reservation contract
    • Expected to be in service in two phases in 3Q 2016 and the first half of 2017
  • SunCoke Energy Partners (SXCP) announced acquisition of Convent Marine Terminal, a coal export hub in Louisiana, for $412mm (press release)
    • SXCP also announced authorization for $50mm unit repurchase program to support its unit price (press release)
  • NGL Energy (NGL) announced additional gathering system to be connected to Grand Mesa pipeline project, increasing project guidance (press release)
    • The disclosure was buried in the distribution growth announcement
    • NGL now expects the Grand Mesa pipeline to produce annual EBITDA of $160-175mm compared with $150mm previously reported guidance


  • Exterran Holdings (EXH), sponsor of Exterran Partners (EXLP), announced the withdraw of its senior notes offering due to adverse market conditions, and announced delay in the spinoff of its international business until market conditions improve (press release)
  • Distribution increases:
    • SHLX +8.6%
    • ETE +8.2%
    • PSXP +8.1%
    • MPLX +7.3%
    • TRGP +5.4%
    • SXL +4.5%
    • TLLP +4.0%
    • RRMS +2.5%
    • ETP +2.0%
    • ENLC +2.0%
    • USAC +1.9%
    • SXCP +1.8%
    • RMP +1.9%
    • HEP +1.4%
    • ENLK +1.3%
    • NGL +1.2%
    • ENBL +1.1%
    • MWE +1.1%
    • SMLP +0.9%
    • CPLP +0.9%
    • NGLS +0.6%
  • Cut: HCLP (cut to MQD, or 30%), RNO (suspended entirely)
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