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December 21, 2014

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MLP Week Thoughts: Sigh of Relief

Relief of a potential floor in oil’s decline sparked a rally in MLPs this week. After three straight declining weeks capped by the worst week of the year, the Alerian MLP Index bounced 4.6%. MLPs beat the S&P 500, but they have fallen way behind for the year. 2014 will extend the MLP losing streak vs. the S&P 500 to two years, which has never happened before in 19 years of data.
Weekly Review_12-19-14
Oil prices were volatile again this week, but did have some bright spots, including a sharp rally Friday afternoon that left its price basically flat week over week. Natural gas dropped 9% to below $3.50/mcf on mild weather.   NGLs rallied this week, with propane and ethane both up after hovering near decade lows in prior weeks.
With holiday volume and limited news flow, volatility should continue through the New Year, and we may see MLPs trading up or down with oil, but with some upward pressure from investors trying to get in front of the January effect.
Winners & Losers
Even though oil prices had a couple of positive days and upstream MLPs traded well, only 1 of the top 5 this week was an upstream MLP (VNR). The others were MLPs that had been dropped precipitously in prior weeks, despite not carrying as much commodity price exposure, like SMLP and NGL. NGL and NKA were in the bottom 5 last week, and swung hard the other way this week on no news. There was no pattern among the bottom five, other than they are all midstream MLPs and only one of them is in the Alerian MLP Index (TCP).
Top5Bottom5_12-19-14
Top5Bottom5_12-19-14_chart
Year to date, TCP dropped out of the top five this week, while upstream MLPs and those who have cut their distributions dominate the bottom 5.
Top5Bottom5_12-19-14_YTD
Top5Bottom5_12-19-14_YTD-chart
News of the (MLP) World
News-of-the-World
This week, we got the final IPO of 2014. The final tally was 18 MLP IPOs this year (not counting NextEra Energy Partners, which is a yieldco and Landmark Infrastructure Partners, which I view as a real estate/financial MLP), 1 shy of the record from last year of 19.   Also, 2014 ended the streak of 4 straight years of at least 1 GP IPO. Expect more than one GP IPO next year, but more on that in a few weeks when we release the 2015 prop bet lines.
IPOs_2014
Equity

  • Rice Midstream Partners (RMP) priced MLP IPO of 25.0mm units at $16.50/unit, raising $412.5mm in gross proceeds at a 4.55% yield (press release)
    • Priced well below the range, representative of the extremely challenging market environment (Alerian MLP Index declined 10.1% during RMP’s roadshow)
    • RMP opened at $15.79, traded as high as $16.48, before closing at $16.30, down 1.2% in its first trading session
    • RMP traded better Thursday and finished the week up 3.9% from IPO price
    • 55% yield is much higher than recent MLP spin offs (AM – 2.66%, CNNX – 3.34%), but it would have been a record low yield as recently as July 2013 (right before PSXP’s IPO)
    • Worst environment ever for an MLP IPO to price in
  • Regency Energy (RGP) filed S-3 to register up to $1.0bn worth of common units (filing)

M&A / Growth Projects

  • Dominion Resources, Inc. announced acquisition of Carolina Gas Transmission for $429.1mm, and expects to sell it down to Dominion Midstream (DM) by mid-2015 (press release)
    • Dominion expects the contribution to DM will be immediately accretive to distributable cash flow per unit
  • Golar LNG Partners (GMLP) announced acquisition of a floating storage regasification unit from sponsor Golar LNG Limited for $390mm (press release)
    • Will be financed with cash on hand, a new $222.0mm loan from Golar LNG Limited and the assumption of bank debt associated with the vessel
  • Summit Midstream Partners, LLC, the privately held sponsor of Summit Midstream Partners, L.P. (SMLP) announced a natural gas gathering agreement with XTO Energy (press release)
    • Summit will develop and operate a new natural gas gathering system servicing XTO’s natural gas production from Belmont and Monroe counties in southeastern Ohio
    • Summit expects to spend $400mm over the next few years to support the agreement
    • The transaction increases the development backlog of assets that the sponsor will eventually sell to SMLP to more than $2.0bn
  • CrossAmerica (CAPL) announced acquisition with CST Brands of 22 stores from Landmark Stores (press release)
    • CAPL will acquire all of the 22 fee sites as well as certain wholesale fuel distribution assets for $43.5mm
  • World Point Terminals (WPT) announced $29.4mm drop down acquisition of a North Carolina terminal (press release)
    • Assets are expected to generate $3.2mm in annual EBITDA (9.2x EBITDA)
  • Teekay Offshore Partners (TOO) announced a contract with Queiroz Galvao Exploracao e Producao SA (QGEP) to provide floating production, storage and offloading (FPSO) vessel under a 5 year charter beginning in 2016 (press release)
    • TOO will acquire a vessel from Teekay Corp and upgrade the vessel for a total capital outlay of $240mm to service the contract

Other

  • Memorial Production Partners (MEMP) announced that its board has authorized a common unit repurchase plan for MEMP to repurchase up to $150mm of its units (press release)
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