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April 27, 2014

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Week Thoughts: Ethane Exports Ex-Excitement

The MLP Index was down 0.8% this week on a total return basis, breaking the streak of 4 straight positive weeks we’ve been enjoying.  Large-cap diversified MLPs and midstream c-corps, including GPs, were down more sharply than other MLPs, as it seems the selling was focused on the most liquid names.
If I were to speculate, I might be tempted to say that it was profit taking in the broad MLP products that hold such liquid names in size.  In any event, the stock market sold off a bit overall (S&P 500 down 0.1%), but sold off hard Friday.  MLPs did not exhibit much in the way of defensive characteristics this week, unlike Utilities (UTY +1.9%), which continue to catch a bid in the yield audible investors have called so far this year.  Commodity price weakness may have contributed to MLP weakness (oil, natural gas and NGLs all down significantly).

Weekly MLP Review_4-25-14

MLPs remain comfortably ahead of the S&P 500 and well behind utilities.  MLPs continue to trade in no man’s land between stocks and utilities, between growth and yield.  That will happen when the market’s looking for defense and MLPs have sold themselves as growth vehicles in recent years.
50 MLPs will pass through their ex-distribution dates this week, including KMP, EPD, OKS, PAA, and ETP.  Ex-distribution season brings volatility and for the last 4 years in a row, has kicked off poor performance for May.  This week MLP investors chose to brace for the impact of ex-dates and seasonal MLP weakness, pre-selling that volatility.  If that weakness continues through the end of April, it could set up well for the MLP Index to break its May curse (if earnings seasons continues on its generally positive path).

Crash Position

Earnings season picks up the pace this week with 14 MLPs announcing 1Q14 results.  Notable reports coming this week that will draw attention: BWP (first quarterly report after distribution cut), WMB/WPZ (plant explosion details hopefully, Geismer update), and EPD (details on ethane export project and strategy). Also, several of the fastest growing MLPs will report this week, including ACMP, OILT, PSXP, TLLP, and MPLX.
Poll Questions:
There were quite a few news items this week, see below for the summaries.  The ethane export facility announced by EPD was devoid of many details, but it was probably the biggest announcement of the week.  Also, Connecticut research firm Hedgeye (well known by now in the MLP space after LINE and KMP assaults) released a report to subscribers about the Atlas family of partnerships (ATLS, APL, ARP).  APL announced a new processing plant (probably not in response, but convenient timing).  APL’s press release stated the plant would be online in 2H 2015 with most of the capital being spent to construct the plant deployed in 2015.  I’m interested in your opinion on those two announcements.

Which of the below monikers for LNG or gas exports do you prefer?

  • DOE’s Choice: Molecules of U.S. Freedom (35%)
  • Frozen Democracy Juice (26%)
  • Frosted Liberty Vapor (24%)
  • Big Hairy American Winning Molecules (15%)

Total Voters: 86

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MLPs with obvious structural overhangs should be:

  • Pre-judged and avoided (76%)
  • Presumed innocent (24%)

Total Voters: 120

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Winners & Losers
SRLP (Sprague Resources) led all MLPs this week with a 10.8% increase, following the announcement of a lease for a 1.0mm bbls storage facility in Rhode Island.  ENBL’s good vibes post-IPO continued this week, up another 8.1%.  NS’s results helped confirm investor hopes of a 1.0x+ coverage ratio as a 2014 exit rate, and helped its stock price outperform this week.  SDLP’s large distribution increase helped confirm the viability of its growth strategy, and sent its stock higher.
It was ugly on the downside this week.  ENLK held its distribution flat (although ENLC increase its dividend 20% quarter over quarter), which led to its decline to well below the price of its recent secondary offering.  CMLP also held its distribution flat, making the 6%-10% 2014 distribution growth guidance less likely, and sending its price lower.  NSLP’s equity offering pressured its stock price.  Upstream MLPs ARP and EROC each dropped sharply this week as well: ARP on rumors that it might have a bad business model spread by Hedgeye, and EROC on confirmation that its business model is failing (as EROC is suspending distributions until it can close the sale of its midstream business to RGP).



Year to date, EROC dropped back after its distribution suspension announcement, CMLP fell back into the bottom 5 after its flat distribution announcement.  APL dropped a spot as well, after finding itself in the crosshairs of research firm hedgeye this week, alongside ARP and ATLS, each of which suffered through worse weeks than APL.  OILT dropped out of the top 5 this week, replaced by coal operator RNO.  Of the growth MLP stories in the top 5 last week that have led the way this year to date (PSXP, TEP, OILT, EQM), EQM was the only one to have a positive week this week, after releasing 1Q results that included raised guidance and very strong coverage of more than 1.5x even with a healthy 7% quarter over quarter distribution increase.  PSXP had an even healthier distribution increase (+22% qoq), but the market was not as thrilled with that, at least this week.



News of the (MLP) World

3 small equity offerings, all with 1 day marketing periods (as opposed to pricing overnight) this week.  Rather than a slow dissipation of overnight deals, the ATMs and fully-marketed offerings seem to have wholesale replaced the overnight deal.



  • New Source Energy (NSLP) prices offering of 3.0mm common units at $23.25/unit, raising $69.8mm in gross proceeds (press release)
    • Upsized from 2.8mm units
    • One-day marketed offering, file-to-price decline of 6.4%, traded flat from pricing in the next day of trading
  • Dynagas LNG (DLNG) files for $138mm equity offering (filing)
  • SunCoke Energy (SXCP) prices offering of 2.8mm common units at $29.03/unit, raising $81.3mm in gross proceeds (press release)
    • One-day marketed offering with a file-to-price decline of just 0.1%, and units traded up the next day 0.4% (while the index was down 0.8%)
  • Compressco (GSJK) mixed shelf filing to raise up to $500mm in equity and debt securities (filing)

M&A / Growth Projects

  • Enterprise Products (EPD) announces plans to construct the world’s largest ethane export facility on the Texas Gulf Coast (press release)
    • Fully-refrigerated ethane export facility on the Texas Gulf Coast with designed loading capacity of 240,000 bbls/d
    • Facility expected to begin operations in 3Q 2016
    • Underwritten by long-term contracts for a portion of the capacity
    • No details on cost of the facility, specific location, amount contracted, or the destination countries for the ethane leaving the facility
    • Speculation is that the facility could be located in Beaumont to avoid congestion at the Houston Ship Channel (HSC), but the facility will likely have a direct connection to Mont Belvieu like its LPG export facility on the HSC does
    • We are all awaiting further details on EPD’s earnings call next Thursday
    • Despite an ongoing debate in the industry on the economic viability of ethane exports given the cost to convert crackers and infrastructure at the destination, the cost to build refrigerated ships capable of transporting ethane, EPD was able to announce a bigger-than expected project earlier than most expected
      • EPD stock price did not react to the announcement, but Navigator Holdings (NVGS), which announced plans to build 3 additional ethane liquefied gas carriers, was up 12% on the day of the EPD and the new-build announcements
      • Ethane prices also did not react much on the news, but once online this facility will definitively help reduce ethane pricing pressure from the ongoing North American ethane glut.  But even the world’s largest ethane export facility could still leave the U.S. long ethane supply.
  • Atlas Pipeline (APL) announces new Permian Basin processing plant and contract extension ($100-$120mm cost) that will come online in 2015 (press release)
    • APL signs 10-year extension to natural gas gathering and processing agreement with Pioneer
    • Agreement extends the term of the contract an additional 10 years (out to 2032) and extends the area of mutual interest in Martin and Andrews Counties in the northern part of the Permian Basin
    • APL will construct a new 200 mmcf/d processing plant to be in-service by the second half of 2015 for an estimated cost of $100mm to $120mm with the majority of the capital spent in 2015
    • Plant will be fully-integrated with APL’s WestTX gathering and processing system
  • Global Partners (GLP) announces a pipeline connection agreement between with TLLP, whereby TLLP will construct a new lateral to move crude from its Dunn Center Station to Basin Transload’s facility (press release)
  • SXCP announces drop down acquisition of additional 33% interest in Haverhill and Middletown cokemaking facilities from SunCoke Energy, Inc. for $365mm (press release)
    • When closed, SXCP will own 98% of the two facilities
  • WPZ announces Transco pipeline expansion to deliver natural gas to LNG export facility at Sabine Pass (press release)
    • Project dubbed Gulf Trace, includes 1.2mm dekatherm/day expansion
    • Sabine Pass is the anchor shipper, but open season ongoing to assess interest in remaining volumes
    • $300mm project will be in-service in 2017
  • WPZ receives FERC approval for $50mm expansion (press release)
    • Project involves adding compression in Alabama and upgrades to existing facilities in Washington and Mobile counties in Alabama
    • Project will provide additional natural gas transportation capacity to SE markets by Spring 2015
  • Sprague Resources (SRLP) announces 5-year lease with Capital Properties (CPTP) to operate CPTP’s 1.0mm barrel storage facility and related deep water pier in East Providence, RI (press release)
    • Sprague will pay $3.5mm per year plus $0.15/bbl of throughput beyond 3.5mm bbls to CPTP


  • WPZ plant explosion, fire still burning (Reuters)
  • TransCanada Keystone XL
    • Long article from that chronicles the Keystone XL saga and the roles played by the Executive branches of Canada and the U.S. (Bloomberg article)
    • New political cartoon sponsored by the American Petroleum Institute regarding the Cowboys and Indians protests in Washington DC this week (Fuel Fix)
  • Other Interesting Energy Articles:
    • Austrian company breaks ground on $740mm hot-briquetted iron plant in Corpus Christi (Fuel Fix)
    • U.S. Energy Secretary comments on New England natural gas constraints (Associated Press)
    • EIA says U.S. fuel exports reach new record (Fuel Fix)
    • North Dakota radioactive oil waste highlights strained infrastructure in Bakken (Associated Press)
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