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October 20, 2013

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MLP Week Thoughts: Trading Places

MLPs were along for the ride this week (MLP Index +1.7%), rising in tandem with the broader market’s rally (S&P 500 +2.4%, closing the week at fresh all-time highs).  The oil futures price dropped to nearly $100/bbl on the November contract, and natural gas was roughly flat.  The market liked that the U.S. was able to avoid default and that the government GDP machine would be getting back to work. Its hard to envision how the next deadline in a few months goes any different, but hope springs eternal in the stock market at least, as this week proved. You might notice that my chart above is a little light on data relative to what you normally see here (no MLP Index total return, no S&P 500 total return, no ethane and propane).  That has something to do with not having access to bloomberg data at the moment, more on why below. You might also notice that the top 5 and bottom 5 charts aren’t in this post like they normally are, and that’s because of a totally unrelated issue of me forgetting to bring my laptop why travelling cross country for the weekend and attempting to complete a post using a combination of my ipad with a wordpress app and the boarding pass printing kiosk in the lobby of my hotel.  The combination of the above factors makes this post pretty bush-league compared to what you might be used to.  My apologies.
As mentioned above, I am in between market data providers at the moment, because I am in between jobs.  Friday was my last day at Guzman & Company, which was a great place to work with great people, and which provided me with a platform to publish research and to manage assets. 
But, I was offered the opportunity to end my short-lived sell-side equity research career and to join an investment team at a large asset management firm with a growing strategy.  In a few weeks, I will start at CBRE Clarion in the suburbs of Philadelphia. CBRE Clarion manages $24bn in assets, mostly in strategies targeting publicly-traded real estate firms, but the firm is dedicated to growing its Global Listed Infrastructure strategy. I am joining that team to cover oil and gas pipeline and storage companies, including MLPs.
Since taking the job and agreeing to move to the Philadelphia area, I have tried to find movies that would help me give my wife a sense of the area.  Wikipedia reminded me that one of my favorite of the early R-rated Eddie Murphy comedies was set in Philadelphia: Trading Places.  The movie itself offers very little parallel to my current situation, and whatever sense of the city in the movie is now 30 years old, but I do relate to the scene where Randolph and Mortimer Duke offer Billy Ray the opportunity to get out of the limo they picked him up in.  He looks around at the fancy car, the cigars and the high-end hooch, and he says: “No. No, I believe I can hang out with you fellas for a little while…”
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What does the new job mean for the future of MLPguy’s presence on the web?  For now, I am going to continue to publish at least weekly (with more and better data).  Longer term, I’m not sure. But, wherever and whatever I do publish, I’ll make sure you guys hear about it.  CBRE Clarion has already published some interesting whitepapers on infrastructure investing (see here), and we will likely produce additional MLP-focused content once I get acclimated, so stay tuned.
Abbreviated News of the (MLP) World
The Kinder Family of MLPs reported earnings on Wednesday.  KMP results generally met analysts’ expectations, and there is some buzz around the NGL pipeline JV with MWE.   EPB results were largely inline as well, although EPB will have some headwinds from recent rate case settlements on Wyoming Interstate Company and Southern Natural Gas systems.  Both MLPs are running at less than 1.0x distribution coverage on purpose, which is one of the reasons I am not a huge fan of either EPB or KMP for new money. If you must own something Kinder, KMI is the way to go, and if you think Kinder / MWE will dominate the Bluegrass Pipeline, then MWE is the way to play that specific solution.
Equity

  • Plains GP Holdings prices IPO of 128mm class A shares at $22.00 (bottom of the price range), raising $2.8bn in gross proceeds.
    • IPO yield of 2.71% is the lowest ever for a GP IPO.
    • PAGP will be treated as a corporation for federal income tax purposes.
    • Hard to argue lowest ever yield IPO that raises $2.8bn is anything but a success. It traded pretty weakly, reminiscent of KMI when it priced its own mega-GP IPO a few years ago. PAGP closed its first day of trading flat and ended the week just below issue price with nothing but tailwinds from the broader market. We get about 1 GP IPO a year, and you would think that any GP that goes public would trade well, given the limited universe of public pure-play GPs and the massive capital that has flowed into MLPs. But there seems to be a lack of enthusiasm for the GPs of large cap, very mature MLPs. Of the last 4 GP IPOs, TRGP and WGP have done very well, while KMI and PAGP have struggled. Tough to make a trend out of a sample size of 4, but that’s what the MLP sector forces you to do, with it’s small sector size and trading history relative to other asset classes.
  • EV Energy (EVEP) prices public offering of 5.0mm common units at $36.86/unit, raising $184.3mm in gross proceeds. EVEP traded down slightly following pricing, which was a 4.1% discount to prior close for this overnight deal.
  • Crestwood Midstream (CMLP) launches 14.0mm common unit follow on, which will help finance it’s acquisition of Arrow Midstream last week. Deal hasn’t priced yet, but CMLP dropped 4.2% Friday.

Distributions

  • ATLS: $0.57, +29.5% quarter over quarter
  • XTXI: $0.13, +8.3%
  • WGP: $0.21375, +8.2%
  • APL: $0.65, +4.8%
  • ARP: $0.54, +3.7%
  • WES: $0.58, +3.6%
  • HCLP: $0.49, +3.2%
  • EPB: $0.65, +3.2%
  • XTEX: 0.34, +3.0%
  • KMI: $0.41, +2.5%
  • KMP: $1.35, +2.3%
  • SEP: $0.51625, +1.5%
  • EPD: $0.69, +1.5%
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