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December 24, 2016

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Week Thoughts: Higher Highs for Holidays

MLPs posted a 3.9% gain this week, their biggest week in more than 3 months. MLPs were up each day this week and each of the last 7 trading days.   The streak has put some distance between the 300 level of the AMZ, which would now have to fall 5.4% to cross back below 300.
MLPs look like they will finish the last 9 days of the year strong for an 8th straight year, a fascinating streak discussed in last week’s post.  MLPs are also up 4.8% month to date, on track for their first positive December in 3 years and the best December since the 5.8% gain in 2011.
Firming commodity prices helped MLPs catch a bid.  Oil finished the week above $53/bbl, a 52-week high and the highest price since July 2015.  Propane finished the week at its highest price since December 2014.  Ethane finished the week at its highest price since July 2014.  Natural gas ripped 10% higher Wednesday to close at its highest price since December 2014.
Technicals, fundamentals and seasonality all favor MLPs at the moment  It will be interesting to see if the market agrees once everyone comes back from vacation and if MLPs can post their first positive January in 3 years.
Week Before Christmas 2016

‘Twas the week before Christmas, when all through the land
Not an equity deal was stirring, not even for frac sand
2017 guidance has been scrubbed and carefully prepared
In hopes that when released the market will care.
The junior bankers were nestled all snug in their beds
Fearing visions of M&A pitchbooks dancing in MDs’ heads
And research analysts left town, out since Tuesday,
Had just settled their brains for a long holiday-
When out on the Internet there arose such a clatter,
We all booted our laptops to see what was the matter.
Away to the SEC website we flew like a flash,
Typed in SXL, then found the S-4 with a dash.
That’s the kind of year 2016 has turned out to be,
With one thing or another and tons of drama within ETE.
All year, my wondering eyes have been glued to the screen,
Waiting for some bit of news or rumor to be seen.
This year MLPs down then back up with moves quite extreme,
Driven by a number of financial and fundamental themes.
Now! Ethane, now! Permian, now! SCOOP and STACK!
On JVs, on IDR waivers, LPG exports and pipeline slack!
Permitting, elections, tax reform, and Dakota Access,
Also, distribution cuts to create cash flow in excess.
Almost no IPOs, but there were equity deals from reverse inquiry,
Big M&A from the North into gas pipes, but where was EPD?
Trump and OPEC have solidified a positive backdrop,
As we try to avoid another January flop.
I wrote lots of words, but it didn’t feel like it was work,
Filling your inboxes, maybe keeping you from going beserk.
Now I must lay my fingers away from the keyboard,
Give my family some time and come back fully restored.
I’ll spring back into action next week, please don’t bristle,
And away we’ll fly into next year, like the down of a thistle.
Thanks to you readers, even if we never speak,
Merry Christmas to all, and to all a good week!

Winners & Losers
GLP led the way this week following a lease buyout on better than committed terms.  SUN rallied on covenant relief.  Not much of a theme among the worst performers this week, but unexplainable volatility is to be expected on weeks like this when volumes are lower.
No repeats in the bottom or top 5 this week vs. last.
YTD Leaderboard
On the year to date, VTTI joined the bottom 5, replacing PSXP.  USDP joined the top 5.  The leaderboard is pretty much locked in for the year at this point.  MLPs are now up more than 18.7%.
General Partners and Midstream Corporations
GPs and midstream corporations underperformed the MLP Index this week, although there were clearly some outliers to the upside.  ETE’s S-4 filing, the asset sale rumor and SUN’s strong week helped propel ETE 10% higher.  ENLC was probably helped by the asset sale and new processing plant at ENLK.
TRGP made it a second straight week among the leaders, and EQGP bounced back and then some.
News of the (MLP) World
Capital markets are shut down for 2016, but it was a surprisingly active week of news.
Growth Projects

  • Semgroup (SEMG) and NGL Energy (NGL) announced plans to expand Glass Mountain pipeline into STACK area resource play to Cushing (press release)
    • The 44-mile pipeline extension supported by long-term, fee-based investment grade producer contract is expected to be in-service by 4Q 2017
    • The pipeline system is owned 50% each by SEMG and NGL
  • NGL Energy (NGL) announced acquisition of NGL and condensate terminal and logistics assets in Louisiana and Oklahoma for $51mm from Murphy Energy Corporation (press release)
    • Assets are strategic fit within NGL’s existing assets and are supported by long-term, fee-based contracts
  • EnLink Midstream (ENLK) announced $275mm of asset sales and plans to construct Chisholm III plant to support STACK production (press release)
    • ENLK will sell its 31% stake in private midstream company Howard Energy for $190mm to Alberta Investment Management Corp
    • ENLK separately sold North Texas Pipeline assets in the Barnett Shale to Atmos Energy Corp for $85mm
    • ENLK also announced plans to construct a new 200 mmcf/d processing plant (Chisholm III) to support producer activity in Central Oklahoma’s STACK region that will be online by the end of 2017

ETE Family

  • According to the Wall Street Journal, Jamie Welch and Blackstone have teamed up to try to buy assets from Energy Transfer Partners in a deal that could be valued at $5bn (WSJ Article)
    • Rampant speculation as to what assets this rumor might refer to among the research analyst still at their desks this week
    • ETE traded up sharply on the news
  • Sunoco Logistics (SXL) filed S-4 with details of the process leading up to the ETP merger announcement and details of financial projections for the combined entity that seemed to be better than the market was expecting (filing)
  • Sunoco LP (SUN) announced amendment to its credit facility and term loan agreement to provide for temporary leverage covenant of 6.75x through 12/31/17 before eventually returning to 5.5x by 3/31/19 (press release)
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