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May 18, 2014

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MLP Week Thoughts: Get Your Popcorn Ready

MLPs handily beat broad stock market and utilities indices this week, with the Alerian MLP Equal Weight Index up 1.6% and the Alerian MLP up 1.0%.  While lower interest rates and higher oil prices (which we saw this week) are typically supportive of MLP prices, this week’s outperformance was likely the result of earnings follow-through after the market digested last week’s deluge of MLP earnings releases, which were generally positive.  Also, the investor days for ACMP, WPZ/WMB and ENLK/ENLC were generally well-received.
In summary: MLPs, U.S. treasuries, and oil prices were up, while everything else (stocks, utilities, natural gas and NGLs) was down.
Weekly MLP Review_5-16-14
MLPs are approaching the NAPTP MLP conference (this week) riding high, up 2.1% for the month including distributions and up 5.5% for the year (8.5% including distributions).  But, lest we forget, they had even more momentum heading into last year’s conference (+21.3% from year-end 2012 until the day before the conference, +25.0% including distributions).  The MLP Index peaked the next day, and did not reach that point again until April 1, 2014.  Hopefully this week’s follow-through will help MLPs fare better post-conference this year.
It was 10 years ago that I attended my first NAPTP MLP conference, which I walked to from the office in Times Square to the Essex House on Central Park South.  Back then, there were only around 35 energy MLPs trading and just one track of presentations.
This year, the trek will be considerably longer and the crowds will be much larger.  Also, there will be 3 presentation tracks and tons of information (and noise) to sift through afterwards.  It should be quite a spectacle (especially given it’s a business casual event). I’ll report on the conference next week, but for now, I have to prepare for a full slate of so-called 1×1 meetings, most of which will be at least 3×1.
Winners & Losers
USAC executed a follow-on equity offering this week that included 1.0mm units sold by the MLP’s sponsor.  The deal priced at a reasonable discount, but traded very poorly in the aftermarket, landing USAC in the bottom spot for the week in the MLP sector.  OKS, which priced the other, much larger equity deal this week, traded much better, and hence OKS did not crack the bottom 5.  GSJK continues its weak trading, down 6.1% this week, to make it -23.1% since April 15th (-21.7% including the distribution).
Variable distribution MLP Emerge Energy Services (EMES) was down 11.6%, but I don’t include variable distribution MLPs in the charts below.  EMES crossed over its 1 year IPO closing anniversary this week (priced at $17.00/unit on 5/8/13), and those IPO investors entered the week up more than 450% in that year, so perhaps taking profits at long-term capital gains tax rates was a catalyst for some selling this week, who knows.  Either way, no one is crying for EMES investors this week with the stock price up 72.3% year to date.
On the positive side, SRLP’s strong earnings released on Wednesday pushed its price higher, RRMS was higher as buying continued after its late last week earnings release.  High growth winners PSXP and OILT continued their upward trends.
Year to date, PSXP pushed ever higher this week, while OILT took over the second place position.  EPB dropped into the bottom 5, displacing APL.  Other than that, not much changed on the year-to-date MLP return extremes this week.
News of the MLP World
Equity deals are happening with greater frequency than in the first quarter, which isn’t saying much.  The two offerings this week were both overnight offerings, as opposed to the one day marketed offerings that we’ve seen more of this year.  Of the 21 follow-on equity offerings that have priced so far in 2014, 10 of them have been one day marketed offerings, 11 have been overnight deals. By comparison, in 2013, there were 70 equity deals, and only 14 of them were one day book-build deals.
Generally speaking, an increase in overnight offerings suggests strong demand for MLP offerings.  If the trend continues, we could be seeing an awakening of the MLP follow-on equity capital market.  Equity issuance is part of the deal for MLPs, but tight discounts and strong aftermarket trading make that bitter pill easier to swallow.

  • ONEOK Partners (OKS) prices public offering of 12.1mm units at $52.94/unit, raising $640.6mm in gross proceeds (press release)
    • Overnight offering, priced at 3.5% discount to prior closing price, then traded up 1.7% in the next trading session
    • Offering upsized from initial offer of 11.0mm units
  • USA Compression (USAC) prices public offering of 6.6mm common units at $25.59/unit, raising $168.9mm in gross proceeds ($143.3mm to USAC as primary proceeds and $25.6mm to selling unitholders) (press release)
    • Overnight offering, priced at 4.4% discount to prior closing price, then traded down 2.9% from its offering price in the next trading session
    • Selling unitholders included USA Compression Holdings (owned mostly by an affiliate of Riverstone) and Argonaut Private Equity (which received units as a result of the S&R Compression acquisition in August 2013)
  • Breitburn Energy (BBEP) prices public offering of 7.0mm 8.25% Series A Cumulative Redeemable Perpetual Preferred Units at $25.00/unit, raising $175mm in gross proceeds (press release)
  • Tallgrass Energy (TEP) files S-3 registration statement for up to $1.0bn of equity securities (filing)
  • Knot Offshore (KNOP) files F-3 registration statement for up to $750mm of equity or debt securities (filing)


  • Cheniere Energy Partners (CQP) prices $2.5bn of senior notes for Sabine Pass Liquefaction
    • CQP priced $2.0bn of 5.75% senior notes due 2024 at par, upsized from $1.5bn originally offered (press release)
    • A few days later, CQP priced an additional $500mm of 5.625% senior notes due 2023 at 101.5% of par (press release)
  • Suburban Propane (SPH) prices $525mm of 5.5% senior notes due 2024 at par (press release)
  • Genesis Energy (GEL) prices $350mm of 5.625% senior notes due 2024 (press release)
    • Upsized from $300mm

M&A / Growth Projects

  • Access Midstream (ACMP) announces expansion of the Utica East Ohio (UEO) midstream service complex in Eastern Ohio, which will increase UEO;s nameplate capacity to 1bn bcf/d (press release)
    • UEO is a joint venture owned 49% by ACMP, 30% by M3 Midstream and 21% by EV Energy Partners
    • No discussion of timing or cost in the press release
  • Williams Partners (WPZ) announces FERC approval of its application to construct two related projects to increase natural gas delivery capacity to New York City (Brooklyn and Queens) (press release)
    • Rockaway lateral and Northeast Connector are small projects (associated capex for these projects not listed in the press release), but given the natural gas challenges in the major Northeast cities this winter, WPZ is eager to tout its efforts to solve such issues
  • Tesoro Logistics (TLLP) announces sufficient commitments from third party shippers to proceed with construction of Connolly Gathering System, a crude gathering system to be constructed in Dunn County, North Dakota (press release)
    • System is expected to cost $150mm and to be in service by the end of 2015


  • Eagle Rock Energy (EROC) announces CFO Jeff Wood will resign, effective at the end of May, to be replaced on an interim basis by Robert Haines, currently VP – Upstream Controller (press release)
    • Jeff Wood joined EROC in January 2009
    • It was a wild ride for my one-time direct supervisor, as EROC survived the financial crisis, but its business failed to achieve escape velocity for its leverage and coverage
    • Jeff helped EROC manage through its initial distribution cut in 2009, its July 2009 bottom of $2.75/unit, its recovery to around $10.50 in late 2012, followed by its 2013 distribution cut and fall back near $4.00/unit today
    • On the day the MLP Index reached its pre-financial crisis peak (July 13, 2007), EROC reached an all-time high closing price of $27.64/unit


  • Crude oil exports chatter continues this week out of Washington (WSJ Article)…
    • …but also out of Saudi Arabia, which according to the oil minister there, wouldn’t be upset with U.S. oil exports hitting the global market (WSJ Article)
  • Dominion Resources’s Cove Point LNG project on Maryland’s Chesapeake Bay has cleared the environmental process, providing clear path for full FERC approval, expected by August (Fuel Fix)
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