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July 20, 2013

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Week Thoughts: Commodities Soar, MLPs Flattish

The S&P 500 inched up 0.7% this week to close at a fresh all-time high.  Crude futures closed at a fresh 52-week high at just above $108/bbl.  Propane closed at its highest price in more than 2 months, up more than 9% week over week, and natural gas was up 3.8%.  Treasuries were up (sending rates slightly lower).  Hell, even ethane and gold were up.
You would think this commodity rally, interest rate tightening and peaking stock market would push MLPs higher.  But there was a lot of MLP paper printed this week, with two follow-on equity offerings and two MLP IPOs on the road, and that seemed to weigh on the sector.  The Alerian MLP Index was down 0.7% for the week.

Weekly MLP Review_7-19-13

For the year, MLPs are up 23.3%.  Publicly-traded MLP GPs are up 29.1% for the year, despite all GPs except ATLS being down for the week, led by 4.2% drop from ETE.  Variable distribution MLPs are lagging, but were up this week, led by EMES up 8.3% after its distribution announcement.


Kinder Morgan’s family of public companies reported earnings this week that were largely in line on overall EBITDA, but came in light on DCF/unit and distribution coverage compared with consensus expectations.  Distribution coverage was lower than 1.0x, but Kinder reminded the conference call crowd that it expected lower coverage this quarter would be balanced by higher coverage in future quarters and for the whole year.  Kinder also mentioned that KMP has $14bn in organic growth projects in the hopper, including $5.4bn in KM Canada.
In the coming week, we’ll have more distribution announcements, and earnings season really kicks off week next week.  When earnings season starts, the focus will be on upstream MLPs after all the buzz they’ve received, and on a few MLPs that might be in trouble with persistently low NGL prices and growing oversupply of condensate in certain areas.
The big thing to watch in the coming week is the latest household brand-name, refined products MLP (Phillips 66 Partners), which is priced (at the midpoint filing range) like a GP at 23x distributions (4.25% yield), and I guess it better grow like one to keep up its premium valuation.  It will be the first MLP IPO since Tallgrass a few months ago, but it will be the 8th MLP IPO of the year.
The 9th MLP IPO, Marlin Midstream (FISH), is also expected to price next week at 7% midpoint yield, which is lower than similar smaller gathering / processing MLPs to price recently (SXE and SMLP both had 8% yields in their 2012 IPOs).
We didn’t get our 9th MLP IPO last year until late October, and at this time last year we had only seen 2 MLP IPOs price.  So, we could be headed for a record IPO year.  Below is a quick list of MLP IPOs since beginning of 2012 and their IPO yields.
Recent IPOs
Winners & Losers
LINE continued its recovery and led the entire sector in performance since last Friday.  The sellers are harder to find, both in the market and online.  But you also won’t find research analysts pounding their chests on Twitter about how the shorts have been wrong this week.   Some analysts would probably like to, but FINRA wouldn’t like that too much.
Speaking of chest pounding, USAC was up 5.9% this week and closed the week at a fresh all-time high, and ARP was in the top 5 for the second straight week…  High-distribution growth MLPs GEL and TLLP were at the bottom of the heap this week, which is rare for them (although it was 2nd week in a row that TLLP was in bottom 5).  GEL announced a 2.5% distribution bump last week and TLLP announced a 4.1% distribution bump, but it seems like one household name-brand refined products MLP (TLLP) may be getting traded in for a new one in the IPO market this week (PSXP).  Interesting stuff.


For the year, the bottom five list didn’t change constituents, but LRE and LINE both hopped up one spot.  On the upside, HCLP rejoined the top five, displacing EXLP.


In other news, the Tigers’ city is officially broke and Tiger is in contention (as I write) at the Open Championship, and its still swamp-ass hot here in Austin… Have a good week.
News of the (MLP) World



  • TransMontaigne (TLP) prices offering of 1.45mm common units at $43.32/unit, raising $62.8mm in gross proceeds (press release)
  • Marlin Midstream (FISH) launches $125mm MLP IPO (prospectus)
    • Expected to price after the market closes on 7/25/13
    • Midpoint price of $20.00/unit implies IPO yield of 7.00% and gross proceeds of $125.0mm
    • FISH’s assets consists of natural gas gathering, transportation, treating and processing services and NGL transportation services (midstream natural gas business) and a crude oil transloading business (crude oil logistics business)
  • EQT Midstream (EQM) prices upsized equity offering at $43.50/unit (press release)
    • 11.0mm unit offering (upsized from 10.0mm) raises $478.5mm in gross proceeds to be used to partially fund announced drop-down acquisition (see below)
    • One day marketing period, 6.3% file-to-price decline, traded up 5.1% in the session following pricing
  • Phillips 66 Partners (PSXP) launches $300mm MLP IPO
    • Expected to price after the market closes on 7/22/13
    • Midpoint price of $20.00/unit implies IPO yield of 4.25% and gross proceeds of $300.0mm
    • PSXP owns three crude and refined products systems (Clifton Ridge crude system, Sweeny to Pasadena products system, and Hartford Connector products system)
  • Access Midstream (ACMP) files S-3 to register up to $300mm of common units

M&A / Growth Projects

  • Memorial Production (MEMP) announces acquisition of 3 asset packages of oil and natural gas properties totaling 275 Bcfe of proved reserves for $606mm (press release)
  • Atlas Pipeline (APL) announces plans to build new processing plant in Permian Basin (press release)
  • EQT Midstream (EQM) announces acquisition of Sunrise Pipeline, LLC for $540mm from EQT corporation (press release)
    • EQM to acquire Sunrise Pipeline, LLC from parent EQT Corporation (EQT) for $507.5mm in cash and $32.5mm of common and GP units issued to EQT
    • EQM also agreed to pay additional consideration of $110mm to EQT upon effectiveness of new transportation agreement with a third party that EQM expects to be effective post-closing
    • Sunrise assets consist of 41.5 miles of 24-inch diameter FERC-regulated pipeline that parallels and interconnects with the segment of EQM’s transmission and storage system from Wetzel County, WV to Greene County, PA
    • Pipeline has existing throughput capacity of approximately 400 BBtu/d, all of which is subscribed under firm transmission contracts with weighted average remaining contract life of approximately 10 years


  • Kinder Morgan, Inc. (KMI) announces authorization to repurchase up to $350mm of its Class P common stock of warrants to purchase shares of its Class P common stock
  • Distribution Announcements:
    • WGP: $0.1975, +10.5% quarter over quarter
    • EQM: $0.40, +8.1%
    • TRGP:  $0.5325, +8.0%
    • KMI: $0.40, +5.3%
    • NSLP: $0.55, +4.8%
    • TLLP: $0.51, +4.1%
    • WES: $0.56, +3.8%
    • NGLS: $0.715, +2.5%
    • TLP: $0.65, +1.6%
    • EPB: $0.63, +1.6%
    • KMP: $1.32, +1.5%
    • LRE: $0.485, +0.5%
    • Flat quarter over quarter: HCLP ($0.475), CMLP ($0.51), TEP ($0.1422, pro-rated MQD), MEMP ($0.5125), XTEX ($0.33), XTXI ($0.12)
    • Variable: EMES ($0.37 – pro-rated for partial quarter)
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