MLPs ticked up 0.8%, beating a flattish market in a week where not much moved, including utilities and interest rates. Commodity prices did move up, helping nudge MLPs higher and keep momentum from last week going. Oil broke through $52.00, finishing the week on a high note, but still down 2.8% for the year. The broad market was eerily quiet this week, despite an employment report and some serious geopolitcal developments.
1Q distributions and earnings will start trickling out in the next few weeks, but I bet we see a few more stock-specific catalysts in the meantime. One of those came through this past week (SUN asset sale), but there are others out there, as discussed here in recent weeks. I’m on Spring Break this coming week, which probably means those catalysts will come through while I’m out…
IPO Market Open for Quality
The HESM IPO was important for the sector. It priced at a higher multiple and lower yield than NBLX, was upsized and had a solid pop of 11.3% on its first day of trading. Producer-backed midstream MLPs have been some of the more successful MLPs in recent years, and the model has been well established by WES, ACMP, EQM, CNNX, AM, RMP, NBLX. The HESM IPO was a slight step-out from recent IPOs in that its underlying assets are not in the Marcellus or Permian, which required some additional MVC structuring.
There are clear synergies and a competitive advantage for HESM of having a supportive producer that can direct volumes across existing assets, provide commitments that can support a project, which also attracts third party volumes.
In the next few weeks, we’ll see Antero roll out a different structure, the super high growth GP IPO, with TEGP as the closest comp. With IDRs being taken out for more mature MLPs, it seems like GPs are going public earlier in their life cycle to extend the high growth, high multiple phase of the GP’s life. Or they are just eager to monetize the GP as early as possible.
Encouraging News Flow Continues
It was a pretty eclectic mix of news that highlighted some ongoing positive trends in MLP land. We had a major asset sale, an IPO, a drop-down, growth projects and a buy-in announced this week. The trends touched: healing capital markets (HESM), asset sales continue to be viable self-help (SUN), drop-downs when available still work (TEP), growth projects are returning with production (ENBL) and demand visibility (EPD), and finally some of the smaller MLPs that went public the last few years need to be rationalized over time (WPT being the latest).
Winners & Losers
SUN was clearly the big winner, up nearly 22%. WPT rallied after its sponsor revealed a take-private bid for the small cap MLP. Refinery-sponsored MLPs like MPLX traded well (DKL being the exception). HESM (not pictured, will fix for next week), finished its first 3 trading days up 12.6% from pricing. NBLX, the sector’s most recent MLP IPO prior to HESM, sold off, which is perhaps a coincidence.
CELP went from top 5 to bottom 5 week over week.
NBLX remains the top performing MLP so far this year, but the range of returns tightened up (if you ignore SDLP), as this week saw some rotation from winners. EEP moved up while winners mostly moved lower. There are now only four MLPs with 20%+ returns.
General Partners and Midstream Corporations
Median GP and midstream corporation returns were 0.0%, led by MLPs with higher sensitivity to natural prices like AROC and AHGP. Beyond those two, the range of returns in this group was tight.
News of the (MLP) World
Growth Projects / M&A