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July 5, 2014

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MLP Week Thoughts: Patriotic Pivot?

MLPs had an up and down week.  The Alerian MLP Index was up 1.1% Monday and Tuesday to a new all-time high, then down 1.4% Wednesday and Thursday to finish the short trading week down 0.3% overall.  Positive jobs data pushed interest rates up in the back half of the week, putting pressure on all yield-based securities, particularly utilities (UTY was down 3.1% from Tuesday’s closing price).  The broad equity market continued to march higher, with the S&P 500 up each day of the week, and finished up 1.2% since last Friday.
Weekly MLP Review_7-3-14
It’s hard to read much into the price action of 1.5 days of trading in the middle of the summer, particularly after an uninterrupted 4 month rise in MLP indices, but it’s not unreasonable to think that the falling rate tailwind could turn into the rising rate headwind the market thought it would be at the beginning of 2014.
This week could have been the turning point, or it could have been big MLP buyers taking the back half of the week off to beat the traffic to the Hamptons.  Or maybe all the little MLP buyers were just too busy mourning the end of U.S. Soccer’s brief World Cup run, performing final stomach stretching exercises in preparation for the Nathan’s Hot Dog Eating Contest, or decorating those last few dozen American flag cupcakes.  Maybe Monday everyone will get back to the profitable business of buying MLPs. Maybe.
What do you think? Sorry, there are no polls available at the moment.  
June in the Books
We passed through another month early this week, the best month so far this year, with the Alerian MLP Index producing 5.9% total return.  The positive June marks the 4th straight positive month for the index, during which time the MLP Index produced 15.8% total return.  Also noteworthy, it was the 5th straight positive June for the index.
The second quarter produced 14.2% total return for the index, which was 5th best in the last 10 years (1Q 2013 was the best ever at 19.7%, the last quarter that produced double digit positive returns).  Turning to July, last year was negative, but July has on average been the third best month of the year for the MLP Index (at +3.4%), behind January and April.
Winners & Losers
Drop-down growth MLPs popped this week, led by VLP’s 10.9% increase in 3.5 days, followed by TEP and RRMS.  TEP’s large distribution increase announcement probably helped its land it among the top performers.
FGP, the MLP with the longest running distribution stream without a single distribution raise (nearly 20 years), was down the most this week.  FGP is the most bond-like of all MLPs because of its flat distribution expectation, so it’s a good barometer of the impact of interest rate movements on MLPs.  EEP and BWP retraced some of their big gains from last week, while RRMS landed among the top 5 for consecutive weeks.
For the year so far, TEP returned to the top 5 this week, and LGP returned to the bottom 5 this week, but no changes among the top or bottom 4.
News of the (MLP) World
I normally don’t list out when deals close, because it can be confusing as to what’s been announced and what hasn’t, and it is typically the announcement of the deal that moves stock prices around.  But this week seemed like a nice quiet week for MLPs to clean up their previously-announced deals and get them all closed, so it’s worth noting them all together. The following deals closed this week:

  • RGP acquisition of EROC’s midstream business
  • NGL acquisition of TLP’s GP
  • WMB acquisition of ACMP’s GP
  • MEMP acquisition
  • QEPM drop down acquisition
  • TLLP drop down acquisition
  • VLP drop down acquisition


  • Western Gas Equity (WGP) prices public secondary offering of 5.0mm units at $60.19/unit, raising $301.0mm in gross proceeds for selling unitholder (press release)
    • Units sold by parent Anadarko Petroleum Corp (APC)
    • APC has a multi-year goal of selling ownership interest down but to 20% from 88.7% after the offering
    • APC’s current holdings worth $11.7bn, would need to sell $9.1bn to get to 20% at current prices, which would take 9+ years if APC sold $1.0bn a year
    • Overnight offering, priced at 4.0% discount to prior close, and units traded up 1.0% from pricing to close in the next trading session
  • Hoegh LNG Partners (HMLP) files initial registration statement for MLP IPO of up to $150mm (filing)
    • HMLP was formed by Hoegh LNG Holdings (Oslo Bors symbol: HLNG)
    • Initial assets include interests in 3 floating regasification unit (FSRU) vessels operating under long-term time charters with average remaining contract life of 17 years
    • HMLP will have the right to purchase additional vessels from Hoegh over time
    • Next 12 months EBITDA projected to be $69.2mm,with $38.2mm of cash available for distribution
    • Full incentive distribution rights with maximum tier of 50%

M&A / Growth

  • Linn Energy (LINE) announces $2.3bn acquisition of properties from Devon Energy (press release)
    • Assets include 900,000 acres, with proved reserves estimated to be 1.3-1.5 Tcfe (75% PDP) with current production of 275 mmcfe/d (80% natural gas) and with ~14% annual decline rates
    • Properties located in the Rockies, Mid-Continent, East Texas, North Louisiana and South Texas
    • To fund the acquisition, LINE plans to sells its properties in the Granite Wash and Cleveland plays, which carry production declines much higher than the assets to be acquired
  • Cheniere Energy (LNG) announces new contracts with Woodside and Pertamina to supply LNG from planned Corpus Christi LNG facility
    • 20 year agreement with Australian oil & gas company Woodside Energy to provide 0.85mm tons per annum (press release)
    • 20 year agreement with Pertamina (State owned energy company in Indonesia) to provide 0.76 mtpa (press release)

Other / Industry

  • Tallgrass Energy (TEP) announces $0.38/unit distribution, a 16.9% increase quarter over quarter (press release)
    • $0.22 annualized increase (TEP had announced at least a $0.20 annualized increase at the time of its recent drop-down acquisition)
  • Texas oil production above 3mm barrels/d, making its production close to that of Iraq (Fuel Fix)
    • Includes a chart showing how incredible the growth out of Texas and North Dakota has been relative to overall North American production
  • North Dakota may require production curtailments if the amount of flared gas exceeds the state’s gas capture target (Oil & Gas Journal)
    • No exceptions for wells that are connected to gas gathering systems with insufficient capacity
  • Cheniere Energy (LNG) decides not to ask shareholders to approve another 30mm shares (worth around $2.2bn) to executives, with questions about last year’s 25mm shares remaining outstanding (Fuel Fix)
  • Two Democratic Senators write a letter calling for a more extensive review of the private rulings issued last week regarding stabilized condensate run through a distillation tower (Fuel Fix)
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