MLPs rebounded this week, with most of the gain came on Friday when MLPs rallied despite lower oil prices. The Alerian MLP Index (AMZ) traded up 0.7% for the week, and is now 3.0% higher than the February low from last Wednesday. Performance was better among midstream MLPs than upstream MLPs, and better among larger MLPs, with significant differentiation among winners and losers within subsectors.
The S&P 500 posted a third consecutive positive week up 0.6% to new highs, while utilities posted 1.0% gains for the week. Oil prices finished 4.6% lower this week on continued U.S. inventory builds, and the latest rig count reports that apparently weren’t draconian enough to sustain a fourth consecutive positive week for oil prices. Continued cold weather helped natural gas prices spike, up 9.6% this week and 17.1% since hitting a 52-week low two weeks ago. Cold weather has also helped propane price change this year outpace all other energy commodities.
Top Tier Over the Years
Last week, I ranked MLPs that have paid a distribution for at least a year (so not including recent IPOs) based on their historical annual distribution growth rates. Top Tier MLPs are growing quite rapidly, with each of the top 20 MLPs growing distributions at an annual rate of more than 15%.
I was curious about how that top tier looked 5, 10, and 15 years ago. I have run the numbers and below I share the summary results. The number of fast growing MLPs has expanded along with the universe of MLPs, but the percentage of MLPs growing more than 15% annually has been higher than it is today before (in 2005).
Another Obtuse Index Change
Alerian announced BWP to be added to the 50-member Alerian MLP Index and Alerian MLP Equal Weight Index, replacing APL (press release). BWP was removed from the index last year after cutting its distribution drastically. Prior to its removal, BWP had been in the index since December 2005 (just a month after its IPO in November 2005, before there were 50 MLPs trading). BWP does not currently pay its minimum quarterly distribution, which is a criteria for inclusion in the index. I guess there were no MLPs that met all the qualifications for inclusion, so BWP may have been added because it checked the most boxes of Alerian’s criteria (found here).
Expect more turnover with the index going forward, assuming that distribution cuts beyond the MQD disqualify VNR, EVEP, LINE and BBEP from inclusion in the next rebalancing, and assuming the ETP/RGP deal closes. Below is a chart that highlights the changes to the index since the beginning of 2014, which highlights the massive turnover and the weight redistribution towards large caps, but also some names getting shuffled in and out of the index (yellow shaded names).
Winners & Losers
TEP announced solid results and surprised the market by giving 3 year guidance for 20%+ distribution growth annually. RMP caught a bid this week, presumably on stronger gas prices and a possible read through to higher volumes. PBFX continues to climb higher after its big distribution announcement last week. Better results out of MEP caught the market by surprise, sending its units higher.
On the downside, upstream MLPs VNR and NSLP were dragged down by lower oil prices, but we aren’t seeing the wide daily swings in upstream MLPs that we saw a few weeks ago. CMLP was down on news that a customer that represents 10% of EBITDA may finally throw in the towel and go CH 11. EQM seems to be suffering from some GP overhang, down 6.7% this week. PSXP’s offering contributed to its weakness.
NSLP went from top performer to near the bottom on weaker oil prices this week. MEP made it two weeks in a row in the top 5.
Year to date, small cap, high beta MLPs dominate the top and bottom 5. Of note, I have not included NKA and RNO in these charts and will not going forward. Generally stocks that trade below $5.00 and pay little or no distribution show up on these charts because of volatility, but are mostly meaningless to MLP investors, so it makes sense to exclude them to get a better picture of what’s moving among significant MLPs.
DPM and WLKP escaped the bottom 5 this week, while CELP and NMM made the cut for the top 5, displacing NSLP and LRE.
News of the (MLP) World
Reports of 4Q2014 results were again the focus this week. Results and stock price reactions were mixed, but the market generally reacted positively to receiving clarity on 2015 capital expenditure and distribution growth plans. While trading volumes in MLPs have trended down over the last few months, the capital markets remain open to MLPs, confirmed by a $396mm equity offering from PSXP.
M&A / Growth Projects