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December 2, 2012

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MLP Week Thoughts: Groundhog Day to Year End

MLPs continued their up trend since November 15th, when the post-election fear crested, with a +0.8% week, slightly better than the S&P 500’s +0.6% return for the week.  Natural gas and NGLs dropped this week, with Ethane hitting its lowest price since 2002 on Wednesday.  But oil was up and so were stocks, with firmness of both contributing to MLP strength.  Also important to MLP strength this week was a lack of equity issuance.  With MLP equity supply stagnant for the first time in a few months, that usual selling pressure wasn’t there.

Heading into the final month of 2012, MLPs are up 2.0% for the year, or 8.2% including distributions, compared with 15% total return for the S&P 500.   Expect the market to stay focused on the negotiations in Washington the next 4 weeks in a replay of the debt ceiling debates from last year.  House Speaker John Boehner played the role of the Groundhog this week when on Wednesday he didn’t see his shadow, then on Thursday he did see his shadow (more pessimistic comments).  The market appeared to react both times.
Whoever takes up the role of the Groundhog next week (Obama?), the financial media and we will be there watching to hang on their words and speculate on their meaning (like we do whenever the Federal Reserve chairman).   So, the market will probably continue to be held hostage by repetitive back and forth between the President and various republican members of congress.  It feels like every day is Groundhog Day, what a concept, if only someone had thought to put Groundhog Day and repetition of really annoying days together…oh wait:

November Notes
Random notes and charts now that another quarter is in the books for the Alerian MLP Index:

  • MLPs were down 0.8% including distributions in November, while the S&P 500 was up 0.6%
  • Fourth month in a row with less than 2% move in either direction for the Index

  • If MLPs don’t have a big positive move in December, 2012 will go down on record as the year with the smallest best month of any year since 1996.  In other words, 2012’s best total return month so far is July’s 5.1%, and in every other year except 1996, the MLP Index had at least one month with a higher total return than 5.1%.

  • WORST NOVEMBER SINCE 2008 FOR MLPs.  While that is true, its quite an exaggeration, given the difference between 2008 (-17.1%) and this year (-0.8%) is 16.3%.

  • Seasonality favors MLPs heading into December.  December is typically a positive month for the MLP Index, and the average total return for December the last 16 years is 1.7%.  That is generally followed up by an even stronger January, which has averaged 4.6% since 1996.  Last December, which had 4 IPOs and a bunch of follow-on offerings, produced 5%+ returns.
  • Looks like MLPs will finish the year in the black for the 4th straight year, but the trend is deceleration:
    • 2009: 76.4%
    • 2010: 35.9%
    • 2011: 13.9%
    • 2012 YTD: 8.2%
  • MLP IPOs is an accelerating trend, with another 3 this month:
    • May: 1 (PDH)
    • June: 1 (EQM)
    • July: 1 (NTI)
    • August: 1 (HCLP)
    • September: 2 (SUSP, SMLP)
    • October: 3 (SDLP, LGP, MPLX)
    • November: 3 (SXE, DKL, ALDW)
  • Top 5 best performing MLPs in November (price change):
    • GEL: 11.3%
    • SDLP: 9.2%
    • MPLX: 5.9%
    • OILT: 5.9%
    • EPB: 4.5%
  • Bottom 5 worst performing MLPs in November (price change):
    • OXF: -31.3%
    • HCLP: -24.7%
    • CPLP: -15.4%
    • AMID: 14.9%
    • NRP: -14.7%
  • There were 4 “marketed” MLP follow-on offerings (as opposed to overnight deals or bought deals), the most in a month since there were 4 in June 2009.  There were 3 such offerings in August as well.  As we continue to break records for equity issuance, its clear that MLPs are having a harder time filling books over night and are resorting to 1 or 2 day marketing periods.

Winners & Losers
Memorial Production (MEMP) was up 7.4% despite natural gas dropping sharply week over week.   Drop down MLPs dominate the rest of the top 5, with the exception of NS, which was up after its conference call Thursday when management provided an update on its capital budget and financing plan, which called for junior subordinated notes rather than equity offerings through 2014.  On the downside, OXF went from first last week to the more familiar worst spot this week, dropping 9.9%.  RNO likewise went from top 5 to bottom 5 this week, down 4.6%.  Not much notable news this week, so most of the action was just beta to the MLP Indexes, to the market, and to commodity prices (natural gas for coal MLPs).

As has been the case several times this year, the bottom 5 year to date are dominated by coal MLPs, with CMLP along for the ride on lower drilling activity on its system due to low natural gas prices.  Nothing much has changed amongst the top five week over week.

News of the (MLP) World

Light news week.  Lots of MLPs will be in New York at the Wells Fargo MLP conference this week so there will be lots of MLP presentations posted to the IR sections of MLP websites.


  • No deals this week!


  • Inergy Midstream (NRGM) prices $500mm of 6.0% senior notes due 2020 at par


  • LRR Energy (LRE) announces acquisition of oil and natural gas properties in Oklahoma from Lime Rock Resources for $21.0mm
  • ONEOK Partners (OKS) announces it will not proceed with construction of Bakken Crude Express Pipeline project
  • Crestwood Midstream (CMLP) announces Crestwood Marcellus Midstream (35% owned by CMLP) to acquire compression and dehydration assets from Enerven Compression for $95mm


  • Holly Energy (HEP) announces 2-1 common unit split, effective 1/16/2013
  • Western Gas (WES) announces intention to recommend 4th quarter distribution of $0.52/unit, a % increase over its 3rdquarter distribution
    • This was part of the latest WGP filing (WGP is the GP of WES that is on file to go public)

That’s all for this weekend, have a good week everyone…

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