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February 15, 2015

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MLP Week Thoughts: Top Tier

The MLP Index stumbled this week, but the index remains up 2.8% for the month so far, on track to post its first positive month since August. The index has produced negative 13.9% total return since the end of August, but has rallied 9.4% (including distributions) since January 15th. Performance was balanced across the sector as midstream MLP earnings reports helped them gain traction, while upstream and oilfield services MLPs continued higher with oil prices starting mid-week.
Weekly MLP Review_2-13-15
The S&P 500 posted a second consecutive positive week up 2.0% to new highs, while utilities declined for the second straight week and finished down 3.4%.  Oil prices were volatile but climbed higher Thursday and Friday and 2.1% for the week, making it three positive weeks in a row.  Natural gas spot price rebounded 6.8% this week after 3 straight weeks of declines, with expected cold weather in the northeastern U.S. the likely driver.
In the upcoming week, some very large and active MLPs are set to report earnings, including: ETP/ETE/SXL, WPZ, and ENLK.
What is Top Tier?
Top tier growth is oft alluded to in the MLP sector, and the more hyper growth drop-down MLPs that go public, the higher the hurdle rate is for making it into the top tier club.   But when an MLP guides to “top-tier” distribution growth, what does that mean?  Below I’ve gathered some data on the top 20 MLPs that have paid at least a year’s worth of distributions, so several of the self-proclaimed top-tier MLPs (e.g. DM, SHLX, CPPL, etc) are not included.
The top 20 fastest distribution growth MLPs over the last year have increased their distributions by an average of 26.9%, while the top 5 averaged 44.8% growth.  On a 3 year CAGR (or shorter if the MLP has not traded for 3 full years), the top 20 fastest growing MLPs have grown distributions at an annual rate of 22%, with 31.5% average for the top 5.
MLP Top Tier
Of the 100 or so MLPs included in this analysis, it’s pretty incredible that 20% of them have grown distributions more than 15% annually over the last few years.  With new high-growth MLPs and with consolidation of smaller MLPs, the top tier looks like it will push higher for the next few years, and a quarter of all MLPs may grow 15% or more.  Visibility into that kind of growth from sponsor-driven distribution growth helps mitigate impact of commodity prices, at least for a little while until the drop-downs slow down for some of these MLPs.
What about GPs?  There are only 11 (for now) pure play or nearly pure play GPs that I track.  The average growth rate of those over the last year is 30.5%, and 24.4% over 3 years.  The top 5 have grown even faster, with average YOY growth of 45.5% and 33% over 3 years.
GP Top Tier
Next week, I’ll come back with some analysis of how the “top-tier” annual distribution growth rate has changed over time.  MLPs may have achieved growth rates this high, but driven by third party acquisitions (which were much less competitive back then).  No MLPs publicly-guided to 20%+ distribution growth a decade ago.
Winners & Losers
MLPs in the same subsector went in different directions this week, a symptom of the volatility we’re seeing week to week.  Coal MLP RNO rallied 11.4% while coal MLP NRP declined 12%.  Upstream MLP NSLP led all MLPs with a 23.9% gain, while upstream MLPs BBEP and EVEP each made the bottom five.
3 of the bottom 5 were up 25%+ last week, so a selloff was understandable for BBEP, JPEP and EVEP.
For the year overall, CCLP has claimed the top spot from LINE, while FISH, NSLP and LRE join the top 5.
NRP replaced TOO in the bottom 5 this week.
News of the (MLP) World
This week we got the first follow-on equity offering to trade up after pricing so far this year.  Not a bad indicator for the state of the capital markets.  We got another couple of third party acquisitions and a sizeable drop-down.  Also, as has become almost as routine as MLP IPOs, we got another Alerian MLP Index constituent change.

  • Rose Rock Midstream (RRMS) priced public offering of 2.0mm units at $40.32/unit, raising $80.6mm in gross proceeds (press release)
    • Overnight offering, priced at 4.0% discount to prior close
    • RRMS traded up 2.9% in the session following pricing
  • As previously discussed by EQT Corp, EQT GP Holdings, LP (EQGP) filed an initial prospectus to raise up to $300mm in an IPO (filing)
    • EQGP will own 34.4% L.P. interest, the 2.0% G.P. interest and all of the incentive distribution rights of EQT Midstream Partners (EQM)
    • IPO is expected to be for approximately 18-20% of the outstanding units
    • Structured as a partnership
  • Sol-Wind Renewable Power LP (SLWD) postponed IPO (The Deal)
    • A yieldco in an MLP wrapper, SLWD was attempting to raise $174mm at $20/unit (6.5%)
    • Price talk trended lower and the deal was pulled on weak demand, a stark contrast from the largest ever MLP IPO (CPPL) that priced above the price range last week


  • Suburban Propane (SPH) priced $250mm of 5.75% senior notes due 2025 at par (press release)
    • SPH will use the proceeds to fund a cash tender for $250mm of its outstanding 7.375% senior notes due 2020

M&A / Growth Projects

  • Rose Rock Midstream (RRMS) announced drop-down acquisition from SemGroup (SEMG) for $325mm (press release)
    • Assets acquired include the Wattenburg Oil Trunkline System and SemGroup’s 50% interest in the Glass Mountain Pipeline
    • Purchase price will be funded with 1.75mm units issued to SEMG, cash and net proceeds from the above equity offering
    • Wattenburg Oil Trunkline is a 75-mile oil pipeline in the DJ Basin, which transports production from Noble Energy to the White Cliffs Pipeline
    • Glass Mountain is a 210-mile oil pipeline system that comprises two lateral pipelines originating in the Granite Wash and Mississippi Lime plays
  • Kinder Morgan (KMI) announced the acquisition of three terminals and one undeveloped site from Royal Vopak for approximately $158mm (press release)
    • Assets include a storage complex in Galena Park, TX, two terminals on the coast of North Carolina and an undeveloped site at Perth Amboy, NJ
    • Galena Park assets are adjacent to KMI’s Galena Park complex
  • NGL Energy (NGL) announced $280mm acquisition of Magnum NGLs, LLC from Haddington Ventures, LLC (press release)
    • Magnum owns and operates a NGL storage facility with potential capacity of more than 10mm barrels
    • Facility is located southwest of Salt Lake City, Utah with rail and truck access to Western US market
    • NGL will finance the transaction with $80mm in cash and $200mm worth of units issued to the seller
    • Transaction represents a 7.1x multiple of 2017 estimated EBITDA, and is expected to be neutral to distributable cash flow per unit initially, and accretive thereafter


  • Alerian announced EXLP to be added to the Alerian MLP Index and Alerian MLP Equal Weight Index, replacing OILT (press release)
  • Cushing announces changes to the Cushing MLP High Income Index and the Cushing 30 MLP Index to replace Atlas Pipeline Partners (APL) (press release)
    • CCLP to join the Cushing MLP High Income Index
    • BWP to join the Cushing 30 MLP Index
    • Changes will be effective 2/23/15, assuming the Targa / Atlas deals are all approved
  • Williams Partners announces Geismer back on line (press release)
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