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March 17, 2013

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MLP Week Thoughts: Friendly Five Day Fade

Unlike the DJIA, MLPs did not make a new high this week. In fact, the Alerian MLP Index was down each day this week and down 0.8% overall. 5 negative days in a row hasn’t happened since a 5-day streak that ended 12/28/12 and the 7-day streak in early November (immediately post election). The last two streaks saw much more severe declines in value than 0.8%, however, as the December losing streak saw 3.2% of index value decline, and the 7-day losing streak that followed the election saw a drop of 8.7%. As a matter of fact, the chart below shows that of the last ten 5+ day losing streaks the Alerian MLP Index has had, this week’s skid resulted in the smallest percentage loss during the streak.

Losing Streak

The small MLP decline this week is good if you owned MLPs at the beginning of the week, but it also probably means any bounce back is going to be similarly weak near term, if the recent lack of volatility trend continues. MLPs do tend to rise following streaks like this, as shown in the chart above, so we’ve got that going for us, which is nice…

Weekly Review_3-15-13

Outside of MLPs, the stock market generally was up this week, although the much ballyhooed DJIA streak came to an end Friday after 10 straight up days. During that streak, the Dow was up 3.5% during the streak, and dropped 0.01% Friday, which doesn’t exactly signal a selloff. Gold was up, and it may move higher throughout the year if the market turns up the volume on inflation buzz. Oil has been a good inflation hedge over the years and it was up this week as well.
Natural gas futures were up big for the week, and spot prices hit a new 52-week high and are now at their highest point since 9/28/11. Natural gas prices remain fragile and volatile, susceptible to upticks in production. There are plenty of gas drilling opportunities eagerly waiting on higher prices, so headwinds will likely persist, but perhaps a new normal equilibrium price for natural gas could be higher than $4.00. But even between $3.50 and $4.00, that’s much higher than this time last year, which bodes well for upstream MLP and gathering & processing results going forward

Natural Gas Spot Prices

I enjoyed my Spring Break staycation here in Austin. SXSW festivities and crowds didn’t really impact us out in the suburbs, but the lack of traffic from area schools was noticeable and will be missed. This week, late-March Madness gets underway. Over the last few years, my enthusiasm for most televised sports has waned, particularly as it relates to college athletics. My alma mater (Boston University) has no chance to win an NCAA championship of any consequence that doesn’t involve ice. We don’t even have a football team, and our basketball squad is pretty weak for a school with an undergraduate enrollment of almost 19,000 and high end facilities. I think becoming a parent has contributed to my waning fandom. I can’t even seem to find time to go see the professional soccer that I co-founded and own a piece of (although I am eagerly awaiting the arrival of my 2012 NASL championship ring).

All of this is to say sorry to all of you that may have come here looking for a mock bracket breakdown of the best 64 MLPs, or a breakdown of NCAA Champions by conference and how that has translated into MLP performance in the rest of the year. Having won a few brackets in my day however, I will leave you with this: of the last 15 NCAA Tournaments, 11 were won by UCONN (3), Florida (2), Duke (2), UNC (2) and Kentucky (2). So take a hard look at those teams.

Winners & Losers

As the MLP rally faded throughout the week, the spread of winners and losers grew wider. There was very little news on the MLPs below that would indicate causation. We only saw one MLP equity offering this week (from EROC), but it priced at a tight discount and traded well in the aftermarket, so it didn’t break down into the bottom 5.

Best performing MLPs and worst preforming MLPs of the week.

OKS dropped into the YTD bottom 5 this week, while SXL dropped from the top five on its poor showing this week. GLP remains the story of the year. Also, BPL makes its first appearance in the top 5 so far this year, well on its way to a big recovery from a 2012 that BPL investors wish they could forget.

Best performing MLPs and worst performing MLPs this year so far.

GPs are in the lead YTD, but all things MLP still doing very well if you bought them on 12/31/12 (or almost any time since 1996 for that matter, if you avoided the rare blowup).

MLP performance this week and year to date as compared with other related and popular investments.

News of the (MLP) World


New Products

  • Barclays ETN+ Select MLP launched
    • 0.95% management fee
  • Neuberger Berman MLP Income Fund is on the road, expected to price 3/25
    • Led by big MLP names Doug Rachlin and Yves Siegel
    • 1.0% management fee, 1.24% annual expenses
    • Will primarily focus on midstream MLPs and overweight GPs relative to the Alerian MLP Index


  • Eagle Rock Energy (EROC) prices upsized public offering of 9.0mm common units at $9.31/unit, raising $83.8mm in gross proceeds
    • EROC to receive gross proceeds of $83.8mm, net of which will be used to repay borrowings on its credit facility
    • Overnight offering, priced at 3.4% discount to prior close
    • EROC units traded up 2.3% from offer price in the session after pricing
    • Guzman & Company acted as a co-manager for this offering (final prospectus)
      • Congrats to the team on the other side of the wall in Florida on the first of many deals
  • Exterran Partners (EXLP) files S-3 to raise up to $500mm in equity or debt securities


  • Enterprise Products (EPD) prices $2.25bn of senior notes, including $1.25bn of 3.35% senior notes due 2023 priced at 99.91% of par and $1.0bn of 4.85% senior notes due 2044 priced at 99.62% of par
  • DCP Midstream Partners (DPM) prices $500mm of 3.875% senior notes due 2023 at 98.72% of par

M&A / Growth Projects

  • CenterPoint Energy, OGE Energy and ArcLight Capital to combine assets to form midstream partnership, with MLP IPO to come following close of the combination transactions (expected to close in 2Q/3Q 2013) (press release)
    • 3 parties have agreed to form MLP that will include CNP’s interstate pipelines and field services businesses and the midstream business of OGE (owned jointly by OGE and ArcLight)
    • New MLP will be managed by a GP with governance shared 50/50 by CNP and OGE

    • Transaction to form the partnership expected to close in 2Q or 3Q 2013, after which the new entity will pursue an IPO

    • New entity to house all combined midstream assets, will not be a drop down MLP
    • Combined assets will include:
      • 8,400 miles of interstate pipelines with nearly 9bcf of transport capacity
      • 2,300 miles of intra state pipelines
      • 11,000+ miles of gathering pipelines, with combined volumes in 2012 of nearly 4 bcf/d
      • 90 bcf of natural gas storage capacity, 11 major processing plants with nearly 2 bcf/d of inlet capacity
  • EPD announces new 270-mile Gulf Coast ethane pipeline to deliver ethane to petrochemical plants in the U.S. Gulf Coast region (press release)
  • CMLP announces 7-year compression services agreement with Antero Resources Appalachian Corp and new $35mm compressor station (press release)

Corporate Actions

  • USA Compression (USAC) adds former Buckeye Partners (BPL) CEO Forrest Wylie to its board
    • This is the third former high level executive USAC has tapped for its board, following the addition of Bill Manias a few weeks ago, and Bill Shea from the beginning.

Resume Drop
From time to time, people reach out to me looking for work. I always try to pay forward all the helpful career guidance I got early on by doing what I can for those that contact me, but I am rarely hiring for my firm. We are, however, starting to think about additions to our team for Guzman Investment Strategies and potentially on the equity research side. If you are looking or (more likely given my readership) have a son / daughter who is looking, I’d like to hear from you. We are talking about a full time position in Coral Gables, FL. Also, I have a paid internship opportunity in Austin for preferably a current undergrad or recent graduate.

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