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January 10, 2015

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MLP Week Thoughts: Slippery Start

MLPs tumbled this week after 3 straight positive weeks.  The Alerian MLP Index (AMZ) had rallied 11.6% off of 12/15 lows through last Friday, but gave around half of that back this week.  The equal weight version (AMZE) held up better, as some of the commodity sensitive and smaller MLPs have caught a bid, while the biggest MLP EPD dropped 6.8% this week.  MLPs under-performed the broader market by quite a bit this week, continuing the trend from last year.
Weekly MLP Review_1-9-15
Interest rates dropped another 15 basis points to below 2% again. Oil prices dropped another 8.4%, but did pause late in the week to finish the week around $48/bbl.  Natural gas prices declined week over week, despite bitter cold in the Northeast.  With commodity prices still declining, the January effect has not happened for MLPs so far this year.
A 3.2% decline in the first 6 days of the year is the worst start on record for the AMZ in 20 years of data.  The most the index has ever declined in January is 1.4% in 2004, and we haven’t seen a negative January in 7 years.
There is not much positive to say about MLPs at the moment, except maybe that there is no tax loss selling pressure (at least for a few months).  Trading volume is lighter than it has been, as it seems MLPs are being ignored or dismissed to some extent.
MLP earnings kick off in a few weeks, and we’ve started to see distribution announcement already.  Absent company-specific news or a turnaround in commodity prices, MLP trading should continue to be choppy.
Stay tuned next week for the 2015 MLP Over Unders, our 4th annual look at expectations for various data points in the MLP sector.
Slippery When Wet
I watched Home Alone a few times over the holidays.  Among the many sight gags in that move, there is one where Joe Pesci’s character slips on the iced front steps of the house, falls flat on his back, struggles his way up again only to fall back on his back again.  That’s kind of what the MLP sector feels like right now, slippery.
Pesci Down
Winners & Losers
NMM announced an acquisition that sparked its big rally.  NKA popped 22.9% on no company-specific news.  HCLP bounced back from last week’s bottom 5 finish.  GLP may have been helped by cold weather, given its heating oil business and strength in gasoline margins.  On the downside, there were some very large downward moves.  Two Marcellus-focused midstream companies made the bottom 5 this week: AM declined around 15% on an analyst downgrade, which appeared to drag down MWE as well.  Upstream MLPs are notably absent from the bottom five this week, despite two distribution cuts from that group late last week.
Top5Bottom5_1-9-15

Top5Bottom5_1-9-15_chart

The YTD numbers so far aren’t that different given then include just one extra day, but some marine transportation names creep into the bottom five on a YTD basis.
Top5Bottom5_1-9-15_YTD
News of the (MLP) World
GLNG tested the MLP equity waters this week by selling some of its GMLP units in a public offering.  They found offering underwriting to be in line with normal times (3.9% discount), but in the aftermarket GMLP units were slammed another 7.3%.  It may be some time before we see another MLP try to launch a marketed equity offering, without attaching it to an M&A or growth project announcement.  In this market, we may see more creative solutions like LINE did with Blackstone, or like we’ve seen in the space before with private equity infrastructure funds providing capital to MLPs.  Or we may see some weaker MLPs welcome the warm embrace of a merger/ acquisition by a large-cap investment-grade MLP.
News-of-the-World
Equity

  • Golar LNG Partners (GMLP) priced public offering of 7.17mm units at $29.90/unit, raising $214.4mm in gross proceeds to the selling unitholder (press release)
    • 100% secondary offering, no new units issued
    • Selling unitholder is GLNG, GP of GMLP
    • Priced at 3.9% discount to prior closing price, traded down another 7.3% in the next trading session
    • Proceeds to be used to fund development of FLNG assets to sell down to GMLP in the future
  • Regency Energy (RGP) filed equity distribution agreement to raise up to $1.0bn in equity proceeds at-the-market (filing)

M&A / Growth Projects

  • NuStar Energy (NS) announced the acquisition of the remaining 50% interest in Linden, NJ refined products terminal for $142.5mm (press release)
    • Acquired interest is expected to generate $20mm of incremental EBITDA in 2015 (7.125x multiple)
    • The Linden terminal has 4.3mm bbls of refined products storage capacity, primarily storing gasoline, jet fuel and fuel oils
    • The terminal has inbound connections to the Colonial and Sun pipelines and an outbound connection to the Buckeye Pipeline
  • Delek Logistics (DKL) announced new agreements for the Paline Pipeline (press release)
    • Under the new pipeline agreements, DKL will receive a fixed monthly fee over the course of the next 18 months
    • Based on these agreements, annual distributable cash flow is expected to increase $13.6mm (or approximately $1.00/bbl) over 2014
    • Separately, DKL announced a $12mm ac quisition that is expected to generate $2.4mm of EBITDA (5.0x multiple)
  • Tallgrass Energy (TEP) offered additional 33.3% interest in Pony Express Pipeline by sponsor (press release)
    • TEP acquired 33.3% of the Pony Express Pipeline, LLC in 2014
    • Pony Express is a 690-mile crude oil pipeline commencing in Guernsey, Wyoming and terminating in Cushing, OK that was placed into service in 2014
  • Navios Maritime (NMM) announced $147.8mm acquisition of a drybulk vessel (press release)
    • The acquired vessel has been chartered under a 12-year agreement that is expected to generate $18.4mm in annual EBITDA (7.0x multiple)

Distribution announcements have been in-line with expectations for the most part (with the exception of upstream MLPs), but it’s still early in distribution season.  Distribution announcements this week:

  • TEP: +18.3% qoq, +54% yoy
  • PAGP: +6.4% qoq, +27% yoy
  • GEL: +2.6% qoq, +11.2% yoy
  • PAA: +2.3% qoq, +9.8% yoy
  • EPD: +1.4% qoq, +5.7% yoy
  • APL: $0.64/unit, unchanged from last quarter

 

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