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March 9, 2014

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MLP Week Thoughts: Musical Chairs

The MLP Index drifted higher the first 3 days of this week, and then floated down a bit Thursday and Friday to settle up 0.5% for the week.  Oil and natural gas futures were also flat-ish.  Issues in the Ukraine slowed the broader U.S. stock market to start the week, but the S&P 500 rallied in each of the subsequent days to close up 1.0% for the week. Friday’s positive employment report didn’t seem to impact stocks too much.  Small cap MLPs fared better than larger MLPs, as evidenced by strong performance of the MLP Equal Weight Index.

Weekly MLP Review_3-7-14

In the financial press this week, the conversation centered on the 5 year anniversary of the bull market from the S&P 500’s post-financial crisis low on 3/9/2009, especially with the S&P 500 finishing the week at a new all-time high.  The MLP Index wasn’t quite at the bottom at 3/9/2009 (financial crisis low for the MLP Index of 152.7 was set in November 2008), but at 166.3, the MLP Index was 51% off its July 2007 peak at that point.  In the 5 years since 3/9/2009, the MLP Index is up 177%.   In the same time period, the S&P 500 is up an oddly similar 178%.  If you include distributions / dividends, the MLP Index is way out in front with 281% total return vs. 208% for the S&P 500.
Let’s hope the seemingly weekly fresh all-time highs for the market and the 5-year anniversary celebrations aren’t signs of the frantic bustle that occurs in a spirited game of musical chairs as the participants jockey for position in anticipation of when the music will stop.  But when the music has been playing (more or less) for five years, who is to say when it might stop?  In any event, the brief history of MLPs has shown them to be a pretty cozy chair to find when that time comes…
I spent most of the week in New York, meeting with MLP management teams at the Morgan Stanley one-on-one MLP event, and attending/participating as a moderator/panelist at the Capital Link MLP Conference.  It was the first MLP event organized by Capital Link, and I thought it was a strong inaugural conference.  The venue was very nice (the Metropolitan Club at Central Park Southeast), the speakers were interesting, the panels were engaging, and it was very well attended.
At both events, there was a lot of talk about what MLPs are planning to do about the shifting geography of hydrocarbon supply areas and the reverberations throughout the existing energy infrastructure network.  Marcellus natural gas and NGLs, Bakken oil, and Eagle Ford condensate all need to find new markets.  MLPs are each hard at work trying to be the first to capitalize on these opportunities.  There will continue to be winners and losers as those efforts play themselves out, and handicapping the competition is the big challenge for investors these days.  A challenge made especially difficult when MLPs in your portfolio transform (for better or worse) over time, and during that time your tax basis erodes to the point where exiting an MLP position is extremely costly.

Apologies for the brief post this week, but like everyone else in the country, I’m a little short on time this weekend…

Poll Question

At the Capital Link event, both keynote speakers (each of them portfolio managers at MLP investment management firms) brought up in their prepared speeches a question they clearly hear all the time: what inning is the MLP sector in?  Perhaps I’ll share my answer to that question next week with the results of the poll.   Generally the safe answer is to say in the middle innings, because that’s pretty vague and innocuous.  Please let us know which of the below answers best fits your take on the issue.

Sorry, there are no polls available at the moment.

Winners & Losers

Small-cap compression MLP GSJK was the big winner this week, up 10.6% on follow through after its earnings release on 2/27 that helped send GSJK up 5.9% last week.  QRE’s announcement that it was cleaning up its unique management incentive fee program helped it pop 7.0% this week.  On the downside, weak earnings from SXE dragged it to the bottom of the MLP sector for the week.


End of an Era
There was one notable loser in the GP space this week.  XTXI was down 9.6% on its last week of trading before the Devon merger was completed and the ticker changes to ENLC on Monday. XTXI was down big on Friday, apparently because the market realized that XTXI will be removed from the Russell 2000 post-merger. 

Before the new era of EnLink Midstream kicks off Monday, I thought it would be fun to take a look back at XTEX and XTXI since XTXI went public in 2004.  XTXI has more than recovered from the financial crises and dividend cut, but XTEX remains below its peak.  Investor returns in each vary wildly depending on entry date, but purchasing XTXI at any point in the last 5 years (except last Friday) produced returns that dwarf those of the S&P 500 and MLP Index discussed above.


Year to Date

GSJK’s two week rally has catapulted it to the top of the MLP sector year to date.  WNRL popped up into the top five this week, replacing TLLP.  On the bottom five, the four weakest performing MLPs kept their places, but APL replaced AMID as the fifth weakest so far.


News of the (MLP) World

Management changes and analyst ratings reshuffling post-earnings also gave this week’s MLP news an air of musical chairs.



  • Atlas Resource (ARP) prices public offering of 5.5mm common units at $21.18/unit, raising gross proceeds of approximately $116.5mm in gross proceeds (press release)
    • Overnight offering, priced at 4.1% discount to prior close
    • ARP traded up 0.8% in the next session following pricing
  • Vanguard Natural Resources (VNR) prices public offering of 7.0mm 7.625% Series B Cumulative Redeemable Perpetual Preferred Units at $25.00/unit, $175.0mm (press release)
  • Kinder Morgan, Inc. (KMI) announces authorization for KMI to re-purchase an aggregate of up to $100mm of its outstanding common shares and warrants to buy common shares (filing)
  • Martin Midstream (MMLP) files equity distribution agreement to sell up to $300mm of common units at the market (filing)


  • Access Midstream (ACMP) prices public offering of $750mm (upsized from $600mm) of 4.875% senior notes due 2024 (press release)
  • Niska Gas Storage (NKA) prices private placement of $575mm of 6.5% senior notes due 2019 (press release)

M&A / Growth

  • Southcross Energy (SXE) announces acquisition of natural gas pipelines near Corpus Christi, TX for $40mm (press release)
    • 50 miles of pipeline
    • Transport natural gas to two power plants in Nueces County TX under fixed fee contracts that extend through 2029
  • Memorial Production (MEMP) announces $35mm acquisition of oil and gas properties from sponsor Memorial Resource Development (press release)
    • 15.4 bcfe of proved reserves (100% PDP, 54% natural gas / 46% liquids)
    • Reserves to production ratio of 9.8 years
  • QR Energy (QRE) announces acquisition of its general partner, eliminating management incentive fee structure (press release)


  • Semgroup and Rose Rock Midstream (RRMS) announces Carlin Conner to serve as President & CEO, replacing retiring CEO Norm Szydlowski (press release)
    • Former CEO and current chairman of the board of the GP of Oiltanking Partners (OILT)
  • Oiltanking (OILT) announces Ken Owen has been appointed CEO and Director (press release)
  • Southcross Energy (SXE) announces John Bonn to serve as President and COO (press release)
    • Bonn previously served as President of NiSource Midstream Services, LLC
  • Energy Transfer (ETP) wins $319mm pipeline verdict against Enterprise Products (EPD) over its Double E Pipeline joint venture (Bloomberg)
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