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March 18, 2017

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Week Thoughts: Get Pain While You Wait

MLPs made it two straight negative weeks with a 0.9% decline.  Oil prices finished up slightly on the week, stepping back from the abyss with a bullish inventory report Wednesday.  We got an oil relief rally, a FED relief rally, even a Canadian jacket company IPO.  Still, MLPs failed to attract broad-based buying.  NGL prices were down sharply, perhaps contributing to MLP weakness.  Or maybe weakness was due to this week being Spring Break across Texas and the beginning of the NCAA tournament…
For March so far, MLPs are down 3.1%, but continue to cling to a small gain for the year so far.  The S&P 500 has retaken the MLP Index on year over year returns and is well ahead year to date.
Yield-Based Equities Rally, MLPs Fall Short
What was characterized as a “dovish” rate raise by the Fed was applauded by the market Wednesday.  MLPs were already up that morning after the oil inventory report.  MLPs, REITs and utilities rallied after  the Fed announcement that afternoon, but REITs and utilities caught and past MLPs by the end of the day and showed more follow-through the rest of the week, leaving MLPs as relative losers despite the rebound in oil prices that logically should have provided some positive beta for MLPs.
Dividend Stocks
The harsh reality is oil prices at $48.50/bbl doesn’t light a fire under those waiting on the sidelines, to the extent there are investors paying attention to MLPs and debating an allocation.  The sector has become an execution story that will play out during the second half of 2017.  In the meantime, investors bold enough to believe in volume recovery tied to a recovery of U.S. production will get paid to wait, if they can withstand some near-term pain.
Winners & Losers
Of the top 5 this week, just one (SPH) is in the MLP Index.  SRLP announced an acquisition, and SDLP got some contract relief on one of its assets and caught a bounce.  On the downside, CELP discussed a potential distribution cut next quarter and was punished for it.  ENLK and GEL were down on no news.
Not pictured in the chart was Azure Midstream, which was up 215% this week to $0.47/unit on the pink sheets after EPD announced it would be acquiring assets in a bankruptcy auction for more than the stalking horse bid.  Azure remains down 98% from its peak and down 47% YTD.
YTD Leaderboard
Not much of a change on the YTD leaderboard.  OKS dropped back, presumably on weak NGL prices, but remains up 20.9% for the year.  On the downside, AMID and USDP replaced SPH and CNXC among the biggest losers.
General Partners and Midstream Corporations
GPs and corporations outperformed this week overall, but it was a fairly even split of winners and losers.  ETE led the way, with strong showings from SEMG as well.  EQGP continues to be volatile week to week, and OKE had a rare off week.
New of the (MLP) World
For a third week in a row, there were no public equity offerings in the MLP space, although there was a private placement.  EPD picked up a rounding error amount of assets that have some synergies.  A few more open seasons were announced, with Cheniere’s announcement of actual commitments probably the most material organic growth announcement this week.  TRP’s new mainline toll agreement was big news early in the week.
Capital Markets

  • Navios Maritime Partners (NMM) announced private placement of 47.6mm units at $2.10/unit, raising $100mm (press release)
    • Price represented 16% discount to prior closing price

Growth Projects / M&A

  • Enterprise Products (EPD) announced acquisition of Haynesville natural gas gathering assets from Azure Midstream Partners via bankruptcy auction for $189mm (press release)
    • Assets include over 960 miles of natural gas gathering pipelines, three natural gas processing facilities with aggregate capacity of 210 MMcf/d and two 10k bpd NGL pipelines
    • EPD has assets in the region that made them the logical buyer and presumably synergies drove their ability to outbid private equity firm Momentum (M5 Midstream), which reportedly had placed a bid (Fuel Fix)
    • M5 is the same group behind M2 Midstream that sold a natural gas gathering system in the Haynesville to EPD in 2010 for $1.2bn (press release)
  • Cheniere Energy (LNG) announced foundation shipper commitments to support construction of Midship Pipeline and announced binding open season for remaining capacity (press release)
    • Midship is planned to be a 200-mile, 36-inch natural gas pipeline to connect production from STACK/SCOOP resource plays in Oklahoma to Gulf Coast and Southeast markets
    • Commitments are from Cheniere, Devon Energy, Marathon Oil, and Gulfport Energy
  • Sprague Resources(SRLP) acquired two refined product terminals for $70mm (press release)
    • The transaction is expected to be accretive to DCF and generate $8-10mm of adjusted EBITDA annually, implying 7-9x EBITDA
    • Terminals are located in Inwood and Lawrence, NY with a combined gasoline, ethanol, and distillate storage capacity of 157k barrels
  • Phillips 66 (PSX) announced open season for West Texas crude oil pipeline (press release)
    • Not an expansion of Permian takeaway capacity, but does reduce potential for in-basin bottlenecks
    • The Reeves-Odessa Origination (Rodeo) Project will include a pipeline system for crude oil transportation for producers and other shippers in the Delaware Basin
    • The project will have an anticipated initial throughput capacity of up to 130k bpd with an ultimate potential capacity of 450k bpd
  • M2 Infrastructure and TransCanada (TRP-CA) to pursue development of 6.2mm barrels of new oil storage at Cushing (press release)
    • The new crude oil storage will be owned by M2 Infrastructure and operated by TRP
  • Ferrellgas (FGP) announced acquisition of Valley Center Propane (press release)
  • Spectra Energy Partners (SEP) reportedly acquired additional 10% stake in $1.2bn PennEast Pipeline development, bringing total ownership in the project to 20% (Midstream Business)
  • Calumet Specialty Products (CLMT) retains Tudor Pickering to explore potential sale of refinery in Superior, Wisconsin (Reuters)
    • CLMT purchased the refinery in 2011 for around $200mm, and Reuters reports the sale could be for as much as $500mm
  • Golar LNG (GMLP) announced new time charter for one of its LNG carriers, the Golar Grand, for up to 9 years (press release)


  • TransCanada (TRP-CA) announced successful conclusion of its Canadian Mainline open season (press release)
    • Collectively, customers have signed 10-year contracts to transport 1.5 PJ/d of natural gas from the Empress receipt point in Alberta to the Dawn hub in southern Ontario, at a single toll of $0.77/GJ
    • This is a big deal for producers in Western Canada and potentially a big deal for U.S. northeast producers when considering markets for their gas
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