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November 29, 2015

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MLP Week Thoughts: Thin Trading, Still Fat Yields

MLPs joined the broad market in taking a break from news and price volatility this week. The MLP Index was up 0.2%, compared with no change for the S&P 500. The index movements were more subdued than in recent weeks, with just a single day of more than a 1% move (Tuesday +1.4%). Oil prices bounced after flirting with the high $30s per barrel last week. Despite the flat sector performance overall, There was quite a bit of individual MLP volatility, typical of thin trading volume spread across just 3.5 days of trading.
The current MLP landscape looks like the dining room table after Thanksgiving dinner. There are plenty of leftovers, or weaker MLPs trading at massive yields, waiting to be either eaten (M&A) or wrapped up and sent to the back of the fridge to be forgotten and eventually thrown out.
The challenge for M&A in the current MLP world is the biggest potential eaters have already come back for seconds and are too stuffed for thirds (KMI and ETE). Also, some (like EPD and MMP) are watching their figure and are careful not to overeat. Some have already stretched the lining of their stomach (debt capacity or coverage) to the point of acid reflux and have no room for anything else (PAA).
Tis the Season
But Thanksgiving is old news at this point. The world moves on immediately after that last slice of pecan pie goes missing.   There are already at least 3 radio stations in Philly playing nothing but Christmas music. It’s no different in my house. The day after Thanksgiving, I head down the basement and dust off the same old ornaments and lights, and spend the next few days struggling to troubleshoot lighting configurations, a la Clark Griswold in Christmas Vacation.
Light Ball
It’s the same old ornaments on the same old fake tree, all with the same old songs in the background. But it never fails to elicit positive vibes for my family.
It seems like each year in MLP land, there is the same old year-end selling pressure that gives way to good vibes in January. The last 15 months or so have been anything but “same old”, but there still should be reason to believe some of the technical pressure impacting MLP prices will abate come January.
I’m hopeful that by the time I’m deconstructing the Christmas wonderland that is now my house, MLPs will be on a sustained path upward, reflective of those positive January vibes, but also potentially reflective of external, cash-based M&A and a clearer direction on sustained reduction in oversupply across the fossil fuel landscape.
Happy Holidays!
Winners & Losers
Mixed bag at the top of the sector this week, but each one in the top 5 was up more than 10%, volatility which belies the overall flat index performance this week. MPLX showed strength ahead of the MWE merger vote this week. Over the last few months MPLX outperforming MWE has corresponded with negative sentiment on the merger vote.   AMID was up 20.6% on the week, including 11% Friday, but AMID still trades below its price back on 11/11.
WPZ’s free fall continues, as it has declined now 7 of the last 8 trading days. There is no news or transaction to explain the weakness, other than guilt by association with large customer Chesapeake Energy and with sponsor Energy Transfer.
NMM was the only repeat on the list, as the overhang from distribution cut continues to weigh on the stock.
The year-to-date winners & losers chart hasn’t changed much. Still 5 MLPs down more than 70%.
General Partner Holdings Companies
GPs outperformed MLPs by a fair margin this week. Outside of ATLS, ETE was the worst performing GP. WGP led the group, even with a 2.3% decline Friday.
News of the (MLP) World
Almost no news this week, as is to be expected with Turkey Day. But news flow doesn’t stay muted for long in MLP land, so stay tuned. On Tuesday we will get resolution on the MPLX/MWE merger drama with the vote, and we likely will see at least one equity offering or equity private placement. And of course, geopolitics is always looming in the background, but more so this week with OPEC’s meeting Friday just about a year after the OPEC meeting that sunk 1,000 U.S. rigs.
M&A / Growth Projects

  • SemGroup (SEMG) announced that subsidiary SemCAMS announced the acquisition of gas and condensate processing facilities in the Kaybob area of Alberta for $38mm (press release)


  • Crestwood Equity (CEQP) completed 1-for-10 reverse unit split, still yields more than 25%
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