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.
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.
M&A / Growth Projects