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June 29, 2012

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MLP Winners & Losers: Early Fireworks

MLPs were up big this week, helped by beaten down prices from last week, success of EQT Midstream’s IPO (see here), natural gas price strength, a massive MLP closed end fund launch, and the general market and oil price euphoria on Friday.  The Alerian MLP Index was up 1.9% on Friday, lagging the S&P 500 which was up 2.5%.  Front month crude futures hit a their lowest level in more than 2 years (5/25/10 – $77.54/bbl) at $77.69/bbl on Thursday, before bouncing 9.2% Friday to close at $84.92/bbl, posting a 5.8% week over week gain.  Natural Gas closed June at highs of the month at $2.82, highest level since 5/23, but still down 5.5% on the year and 40.2% year over year.  Busy week that I’ll cover in my next post: there were a few drop downs, a PIPE deal, an IPO, another big LINE acquisition (and Linn Co announcement), and a follow-on equity offering.

LRE, the biggest loser last week, was up the most this week at 19.6% bouncing along with commodity prices.  EQM had a sparkling debut on Wednesday, and held those gains through Friday.  Not shown on the table below are two MLPs that announced drop down acquisitions this week, HEP and DPM, and were both up big for the week.  Also, EVEP rebounded after reaching its lowest price since March 2011 on Monday, before bouncing 14.8% off that low on the lat 4 days of the week.  There were only 7 MLPs that posted negative price changes for the week, and one of those (ETP) did a huge equity offering. All 7 MLP GPs were up this week, led by XTXI up 5.4%.

EVEP and LRE recoveries weren’t enough to push them out of the bottom 5 for the year, but RNO dropped back into the bottom 5, displacing NRGY from last week.  CLMT had a good week and displaced RRMS in the top 5 for the week, not other changes, NKA still way out in front.

MLPs have crept back almost to breakeven for the year on a total return basis, holding up well despite lower oil and gas prices year to date.  This chart compared with the weekly charts are a good way to highlight how in the short term, MLPs may seem to move in lockstep with oil and natural gas, but in the longer term, MLPs distributions and distribution growth create total returns that vary significantly from oil and natural gas prices.  That’s how MLPs have low correlation over most longer time periods.

June is in the books with a 3.3% total return.  July is historically the 2nd or 3rd best month of the year (in a virtual tie with April).  That usually happens as investors bid up MLPs in anticipation of distributions in August.  That pattern will be challenged by earnings announcements that will likely echo the announcement NGLS had this week on the impact sharply lower NGL prices will have on distribution coverage.  Expect really light volume next week given that Goldman’s MLP powerhouse PM Kyri Loupis is on vacation, among others I’m sure.

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