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May 25, 2013

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MLP Week Thoughts: Along for the Ride

MLPs bounced back this week, helped by conference buzz and lack of equity issuance.  The MLP Index was up 0.9% for the week and is up 23.7% including distributions for the year so far.  The broader U.S. stock market paused this week, down 1.0%, after even broader global market showed some volatility (particularly in Japan).  Commodity prices were mixed, natural gas and ethane were both up, but oil was down.  10-year treasury yield broke above 2.0% and gold was up big.

Weekly Review_5-24-13

While there were no public equity deals, there was almost certainly primary equity issued this week from the at-the-market equity distribution programs that most of the larger MLP have in place.  At these prices, those ATMs have been very active, but the data flow is difficult to track and we really only hear about ATM issuance in quarterly reports of individual MLPs.  In any event, there was more demand than supply for MLP units this week.
A few notes on the MLP Index’s current yield and MTD performance:

  • Current Yield: 5.62%
    • Simple average of all Alerian MLP Index member yields: 6.6%
    • Lowest ever Alerian MLP Index yield was 5.42% on July 13, 2007
      • Of the MLPs in the index on that day, 9 no longer trade (e.g. PVG, HPGP, CPNO, DEP)
      • 5 others were replaced, so there are 14 different MLPs than in 2007
      • Using 2007 weights and 2013 yields, the 41 MLPs that still trade that made up that 5.42% are yielding a combined 5.89% today (simple average is 6.5%
  • Month to date performance as we head into final week of May: 2.4%
    • May on average has produced -0.3% total return last 17 years
    • Average May total return last 3 years: -6.0%
      • May was the worst month of each of the last 3 years
    • Best May ever was 2009 (+9.3%)
  • Looking forward to June
    • June has historically been an unexciting month
    • June has never been the best month of the year for MLP Index as far back as we have data (1996)
    • June has only been the worst month of the year once (2006)
    • Averaged 0.7% total return last 17 years
    • 11 positive years, 6 negative
      • 3 straight positive years

Conference Thoughts
Participation Up: The NAPTP conference was this week in Stamford.  It’s just a two day conference, but its a manic two days.  With 61 MLP presentations along multiple presentation tracks, it is physically impossible for one person to take it all in during the conference. has audio webcasts of conference sessions online, which helps (although a few session webcasts are not available, like LINE’s).  But the way most MLP asset management firms handle the information overload is by bringing several people.  Kayne Anderson had 9 professionals at the conference, Salient had at least 5, Goldman Asset Management had at least 3, HITE Hedge had 3.  For banks, its the same thing.  There were herds of bankers from Barclays, UBS, Merrill Lynch, Wells Fargo, etc.  I didn’t see too many Citi bankers there, but they’ve got their own private conference in Las Vegas in August.  Also, there was more press at the conference this year than I remember before.  The biggest group of conference attendees from the management team of an MLP was NRGY/CMLP this year (I counted 8, including 5 from NRGY).
Mood Varied: Long time MLP investors are cautious with valuations like they are.  One institutional investor that manages $150mm made the comment that he has a nose bleed at these valuations.  The problem is cautious early MLP investors are getting swept higher by much larger new capital inflows than the sector has ever seen.  The new money and the market doesn’t care if higher prices make you nervous.  MLPs are on a capital inflow ski lift right now.  Maybe if you are hiking up a mountain and the altitude makes your nose bleed, you might stop and take a break.  But when you’re on a lift, a nose bleed may make you feel uncomfortable, but you can’t stop, unless you jump out or the lift breaks.

Ski Lift

Conference Quibbles: If I had my way, the conference would be longer than 2 days, it would be located within a 30 minute drive from a major airport, it would be in a hotel with a bar big enough to accommodate the MLP crowd, and would have more time for Q&A in the main halls as opposed to breakout sessions.  But it’s still the best MLP conference there is because it attracts nearly everyone in the sector and is a great place to re-connect with everyone.
Broad Take-Aways: I met with several MLPs in 1-on-1 sessions (which were usually 2-on-1 or 3-on-1).  Lots of discussion about rail.  The consensus seems to be that rail will be a big part of the solution for a while in North Dakota.  Despite the recent lack of upstream MLP deals, upstream MLPs universally said that deal flow was still expected to be robust in the back half of 2013.  Crude oil transportation is still fundamentally robust.  Ethane rejection continues, propane exports are having an impact on propane, but MLPs are not optimistic about the prospects for ethane for the next few years.  Several MLPs were touting recent deals, while other MLPs badmouthed those recent deals, usually having been involved in the auction.  I’ll save my individual MLP take-aways for research reports.
Winners & Losers
TLLP shot up big this week (disclosure: long TLLP), perhaps just a slow burn of appreciation for its latest acquisition announcement last week.  There is no discernible trend among the top 5, all pretty different MLPs.  Same thing on the MLPs that were down for the week.  TLP was notably in the bottom five for the second straight week.


TLLP and BPL pushed into the top five YTD performers this week.  Both also joined the swelling number of MLPs that have produced 50%+ total returns in 2013 so far (now 11 MLPs).  No change among the bottom 5 constituents week over week.


News of the (MLP) World


Articles and Other News

  • Trading scandal at MLP asset manager Cushing / Swank Capital (Investment News)
    • Just one guy at Cushing, an isolated incident it appears, but probably doesn’t bode well for Swank Capital.
    • This is one more advantage Guzman Investment Strategies has over a firm like Cushing: fewer people at the firm, so fewer people you have to trust.
  • Barron’s posts on MLP conference – Barron’s reporter Dimitra DeFotis was at the MLP conference and had a few posts about the MLP conference this week (Barrons)
  • Forbes post on quest for cheap cost of capital that accompanies investment grade status (Forbes)


  • Teekay LNG (TGP) files equity distribution agreement to sell up to $100mm of common units at the market (SEC Filing)
  • CVR Partners (UAN) priced secondary offering of 12.0mm common unit owned by CVR Energy, Inc. (CVI) at $25.15/unit, raising $301.8mm in gross sales proceeds to CVI


  • Legacy Reserves (LGCY) prices $250mm of 6.625% senior notes due 2021 at 98.405% of par to yield 6.875%
  • Memorial Production (MEMP) prices sale of an additional $100mm of 7.625% senior notes due 2021 at 102% to yield 7.2%

M&A / Growth Projects

  • Martin Midstream (MMLP) announces acquisition of assets of NL Grease, LLC, a grease manufacturer that specializes in private-label packaging of commercial and industrial greases, for $15mm.  Expected to add $2.5mm to annual cash flow (press release)
  • Genesis Energy (GEL) announces expansion of its existing rail terminal in Natchez, MS and construction of Pronghorn Rail Facility in Douglas, WY (press release)
  • Plains All American (PAA) announces 95-mile extension of its existing Oklahoma crude oil pipeline system, adding 75,000 barrels/day of new takeaway capacity from Reydon, OK to PAA’s existing Orion station in Major County, OK.  Expected to be in-service by 1Q 2014 (press release)

Corporate Actions

  • Vanguard Natural Resources (VNR) announces 1.2% increase in its monthly distribution from $0.2025 to $0.2050 (press release)
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