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May 29, 2016

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Week Thoughts: Clenching & Clinching Pre-Conference

MLPs declined 1.1% this week, pausing after the recent surge that took the index above 300.  The index was down despite an oil price and broad market rally.  The equal weight version of the MLP Index was essentially flat, and absent PAA (-11% this week) it would have been positive, so action wasn’t as bad as the overall index would indicate.
Weekly Review_5-27-16
Trading volumes dried up around noon on Thursday, and Memorial Day Weekend took over, probably a little exhaustion in the MLP market as well.  We did get the unveiling of Donald Trump’s present-moment thoughts on possible energy policy.  In short, as of Thursday, he was pro drilling, pro coal, anti-environmental restrictions, anti-global climate change agreements, anti-aid for global climate change initiative, pro Keystone, and pro Harold Hamm.
The biggest MLP conference of the year, the re-branded MLPA conference, goes down in Florida this week.  The mood should be upbeat, much better than the Fall conferences.  See you there.
Weekend Update
While most of us are enjoying some time off, there are two places where actions are being taken that may have a substantial impact on MLP prices next week: the Niger Delta and investment banking offices in Houston.
Avengers Strike Again. In Nigeria this weekend, more oil and natural gas infrastructure was destroyed by the Niger Delta Avengers (AP story here).  The attacks on pipelines owned by Shell and Agip should cause the existing 1mm+ bbls/d oil supply disruption to grow and exert more upward pressure on near-term oil prices.
ETE/ WMB Clinch Stage.  Meanwhile, in investment banking offices in Houston this weekend, I imagine bankers to be hard at work structuring a revised Energy Transfer / Williams merger agreement.  Late Friday, a Reuters report suggested that Williams was open to discussing other deal structures, the implication being that a non-cash merger deal might still be possible.
When two heavyweight boxers get tired in late rounds, they don’t typically trade blows like in the movies.  More often than not, they sort of hug each other in what’s called a clinch (see below for the most famous clinch of all time).  Fatigue has definitely set in for all parties involved with the ETE/WMB saga.  Plenty of blows have been thrown, but it seems like we’ve reached the point where the clinch might morph into an uneasy hug.
An amicable transaction for ETE/WMB would be positive for the sector overall, removing uncertainty and clearing the way for additional (and needed) consolidation across the midstream sector.
Winners & Losers
The market showed its disappointment in PAA even before the analyst day, as it traded poorly all week and finished close to the bottom of the sector.  TEP took the bottom spot on profit-taking from last week’s major gains and on the latest “short call” by Hedgeye’s Kevin Kaiser, who has a much more consistent track record in crashing oil markets and in upstream MLPs than in midstream MLPs in rising oil price environments.  Details of the call are not available to the general public.  Expect TEP management to defend the long-term stability of its business in the coming weeks and to purchase more stock personally (as CEO Dehaemers did Thursday).
On the upside, RRMS again made the top 5, closing up 10% Friday to $24.00/unit Friday, 231% higher than its low on February 11th, not counting the distribution.  CEQP also caught a bid this week, helped by First Reserve stock purchases.  ENBL has also been trading much better (just +180% since its February bottom) as enthusiasm for the SCOOP/STACK and NGL prices is attracting buyers.
Year to date, AMID climbed into the top 5, displacing USDP.  No change among the bottom 5 constituents, which continue to flounder.
General Partner Holding Companies
GP performance was wide ranging this week, but overall GPs underperformed MLPs.  SEMG is not keeping pace with the strength of its subsidiary MLP, RRMS.  TEGP leverage to TEP value and growth didn’t match up this week as TEGP was more resilient this week, down just 5%.  Its relative outperformance may be due to its corporate tax structure and different investor base than its MLP subsidiary.
Signs pointing to the possibility of a WMB deal actually happening pushed ETE lower.  PAGP landed in the bottom 5 again as analyst day non-event hampered the stock this week.
News of the (MLP) World
On an otherwise very slow news week ETE/WMB comes through with more of the drama we’ve come to expect.  Suspense over potential outcomes of backstage negotiations, lawsuits and merger votes continues to ratchet higher and whip around stock prices of the many publicly-traded vehicles in play.

  • Targa Resources Corp (TRGP) filed equity distribution agreement to sell up to $500mm worth of common shares at-the-market (filing)
  • Memorial Production Partners (MEMP) filed equity distribution agreement to sell up to $60mm worth of common units at-the-market (filing)

M&A / Growth

  • Several updates on the Energy Transfer / Williams saga:
    • S-4 went effective, date set for merger vote (June 27), court dates set for lawsuits (press release)
    • ETE countersuits filed (press release)
    • News report hit Friday that WMB is open to discussing a deal that includes smaller cash portion (Reuters)
  • Global Partners (GLP) announced sale of 31 retail stores in New York and Pennsylvania to Mirabito Holdings (press release)
    • Stores were acquired as part of January 2015 purchase of Warren Equities
    • Mirabito and GLP will enter long-term supply contracts for branded and unbranded gasoline and other petroleum products
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