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April 12, 2013

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MLP Week Thoughts: Paper Bought, Oil & Gold Sold

By Tuesday, the MLP Index had made up all of last week’s 2.2% decline as the MLP Index made fresh highs again.  But Wednesday through Friday, the Index drifted lower, closing the week up 1.9% over last week.   The recent trends in commodity prices continued with natural gas prices reaching levels not seen since July 2011 and closing up 2.5%, while oil prices dropped 2.2% to below $91.00 per barrel.  The MLP Index was helped this week by a strong broader stock market (S&P 500 was up 2.3%), a lack of equity offerings (MLPs will likely wait for earnings and fresh financials before launching more equity deals), and a continued build up until distribution ex-dates in the next 30 days.  MLP distribution announcements for the quarter began in earnest this week, with EPD, PAA and GEL each announcing significant distribution increases.
Weekly Review_4-12-13
MLPs, natural gas and GPs dominating so far this year, but the S&P 500 has put in an impressive showing year to date as well.  Variable distribution MLPs are no longer the hottest thing in the MLP space, especially the fertilizer ones.  Gold is the big loser this year (and gold miners are doing even worse).  Gold closed the week at a 52-week low after a 5% drop on Friday alone that sent prices to their lowest levels in three years.  Gold is a lot of things to a lot of people, but its mostly a combination fear and inflation-hedge index, and right now the fear isn’t there and money is flowing away from gold into stocks.  No surprise to see oil and gold moving in the same direction, because on the margin speculators view oil (priced in U.S. dollars) as a solid inflation hedge as well.


Speaking of gold reminds me of the quote from Bishop Don Magic Juan (BDMJ) in the 1999 documentary “American Pimp” from 1999.  American Pimp, directed by the Hughes Brothers (Menace II Society), is one of the more fascinating documentaries I’ve ever seen, right up there with “The King of Kong” in terms of opening my eyes to a culture I didn’t really ever think much about, if you can sit through the expletives and exploitation of women, which is disgusting.  Somehow the entire movie is available free online here (not safe for work), about the 18 minute mark is the BDMJ part.  He claimed his trademark clothing color scheme was green and gold: “that was my trademark, green for the money, gold for the honey”.  I have no idea what that means (but like a lot of the commentary in the movie, it does rhyme).  I do know anything gold in 2013 has definitely not been green.  See below for the green and gold Rolls BDMJ used to have…


We’ll get our first look at how the first quarter was for MLPs when KMP reports on Wednesday afternoon.   KMP’s sheer size plus diversity of business lines and geographies make their earnings widely followed.   So, expect KMP earnings to impact MLPs next week.  Also, there will be many more distribution announcements the next few weeks, which will also be early signals as to how the first quarter was.
Next week’s post may be short or may not happen at all, because I will be taking my two oldest kids (4 and 6) by myself on two airplane rides to Tampa to see the Rowdies play, then on to Disney World for one day (just trying to get an early start on father of the year).  For any readers in San Antonio, the Rowdies will be playing tonight against the San Antonio Scorpions in the first ever game at the new stadium (Toyota Field).  If you aren’t in Tampa or San Antonio, why don’t you buy some gear at our online store.  Remember, its always cool to be a fan of something that no one in your city has ever heard of (like me with Rowdies gear in Austin).
Winners & Losers:
TLP made a comeback this week after being down 11.2% last week.  SXE rallied sharply as well, after being down 7.5% last week. GSJK has been in the top 5 the last 2 weeks (+5.6% last week), and joined the 40% total return club this week, which has 5 members in 2013 so far.  OXF led the way, and is up 35.7% since March 5, but is still trailing all other MLPs for the year.


For the year, SMLP jumped to the front this week, leapfrogging NKA and GLP in the process.  EXLP and GSJK are new to the top 5 this week, as it looks as though higher natural gas price is a good thing for contract compression providers unit prices…who knew?  The bottom 5 made up some ground this week, the two worst performing MLPs were at the top of the weekly chart, a very rare occurrence.  EVEP dropped one spot, and is challenging SXE for the second-to-worst performing MLP spot.


New of the (MLP) World



  • KNOT Offshore Partners (KNOP) prices IPO of 7.45mm common units at $21.00/unit (7.14% yield), raising $156.5mm in gross proceeds (final prospectus)
    • 7.45mm common units priced at the upper end of the price range ($21.00), raising $156.5mm in gross proceeds
    • IPO price represents a 7.14% yield, based on minimum quarterly distribution of $0.375/unit ($1.50/unit annualized)
    • KNOP closed its first day of trading at $21.79/unit, rising 3.8% in its debut
      • 5th MLP IPO of the year, first one to be up significantly on day one (SXCP, NSLP and USAC all down day 1, CVRR was up 0.2%)
    • KNOP owns and operates crude oil shuttle tankers under long-term (5 years or more) charters, and will be treated as a corporation for U.S. Federal income tax purposes
  • Natural Resource (NRP) files S-3 to register 3.8mm common units currently owned by insiders (filing)


  • Memorial Production (MEMP) prices $300mm private placement of 7.625% senior notes due 2021 at 98.521% (press release)
  • Cheniere Energy Partners (CQP) prices offering of $500mm of 5.625% senior secured notes due 2021 at 102.5% of par and prices $1.0bn of 5.625% of senior secured notes due 2023 at par (press release)
  • Rentech Nitrogen (RNF) prices private offering of $320mm of second lien senior secured notes due 2021 (press release)

M&A / Growth Projects

  • Williams Partners (WPZ) announces new midstream joint venture with Shell to provide gathering & processing services to producers in the Marcellus and Utica shale wells in the Northwest Pennsylvania area (press release)
    • New JV formed to provide gas gathering and gas processing services for production located in Northwest Pennsylvania
    • JV will invest in wet gas handling and dry gas infrastructure service Marcellus and Utica Shale wells in the area
    • The new venture, Three Rivers Midstream, has signed a long-term fee-based dedicated gathering & processing agreement for Shell’s production in the area, including 275,000 dedicated acres
    • Three Rivers plans to construct a 200 mmcf/d cryogenic gas processing plant by 2015
    • WPZ will initially own substantially all of JV.  Shell has right to invest capital and increase ownership prior to mid-2015
    • WPZ’s portion of initial capex on the plant, not including the gathering system, is expected to be ~$150mm
  • Holly Energy (HEP) announces construction (jointly with parent HollyFrontier Corp.) of a rail facility in New Mexico for loading and unloading crude oil (press release)
    • HEP and HollyFrontier Corp. (HFC) announce the companies are collaborating to construct a rail facility that will enable crude oil loading and unloading near HFC’s Artesia and/or Lovington, NM refining facilities
    • Initial capacity expected to be 70,000 bbls/d and project is expected to be completed by early 2014
  • Rhino Resource (RNO) announces sale of its 20% royalty interest on its owned Utica Shale for $10.5mm (press release)
    • This event didn’t turn out to be the positive catalyst I thought it would be a year or so ago

Corporate Actions

  • Vanguard Natural Resources (VNR) announces it will change listing from NYSE to NASDAQ
  • Distribution Announcements:
    • Quarter over quarter increases:
      • PAA:  $0.575, up 2.2%
      • EPD:  $0.67, up 1.5%
      • GEL: $0.4975, up 2.6%
    • Flat quarter over quarter:
      • PNG:  $0.3575
      • CPNO:  $0.575
    • Variable: DMLP ($0.448209/unit)
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