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August 11, 2013

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Week Thoughts: Market Takes a Break, MLPs Hold Up

MLPs were flat (counting distributions) in a down market week, which is pretty impressive for the second straight week of $1.0bn+ of MLP equity issued (including two IPOs) while in the tail end of ex-date season.  Oil prices slipped 0.8% and natural gas dropped 3.6% this week, dragging ethane down as well.  Propane closed the week above $1.00/gallon, 15.9% higher than last week, which is a good sign.  YTD, MLPs took back the lead in the total return race with the S&P 500.
Weekly MLP Review_8-9-13
The MLP press release machine was very active this week, with the above-mentioned 2 IPOs, some interesting earnings releases (e.g. LINE, SMLP, GLP) and another fascinating transaction by master tinkerers ETE / ETP.  The busy week was followed by some big time MLP press, including the cover of Barron’s and an investor-focused piece by Jason Zweig in the Wall Street Journal.  I may print the Barron’s piece, put it on my wall and refer back to it, because I don’t know that I’ve seen as many industry-standard answers about general MLP questions in one place before (read it here).   The title (“MLP Boom or Bust”) and the cover (“Navigating the New World of MLPs”) teased a much more interesting article than the actual content of the round-table.  I wouldn’t be saying that if I were one of the people giving the stock answers, of course.  Also, can’t really complain here about a positive general MLP, its much better than a negative upstream MLP article (Barron’s had one of those as well – read here summary of LINE’s earnings).
Barrons Cover
Zwieg’s piece in the WSJ was the more interesting one, with fresh information about the macro MLP fund complex that is a significant driver of fund flows (and returns) of MLPs. Plus, it had practical advice for the average investor looking at the MLP space.
Winners & Losers
Weak earnings were the primary driver of many MLP declines this week.  Second quarter earnings reports have been disappointing for MLPs with NGL exposure.  LINE reported weak results and discussed how their Hogshooter wells didn’t turn out to be as great as initially expected, and management was non-committal on maintaining its distribution in 2014 and wouldn’t speak to the BRY deal, which seems less likely according to most analysts.  XTEX reported a weaker quarter, and delay / slight cost overruns with the Cajun Sibon  expansion project.  But the biggest move came from GLP, down a huge 17.8% this week on weak 2Q results and lowered guidance.  EROC was down 12.3% this week, it seems there was still a line of investors that didn’t get a chance to sell after last week’s earnings.
On the positive side, ETP was up on plans to stop its streak of consecutive flat distributions at 21 quarters with a distribution increase next quarter, the result of a nifty bit of financial engineering that gets ETE closer to being a pure GP and removes 13.5% of ETP’s oustanding units (for which ETP will no longer have to pay a distribution of $44.8mm quarterly).  Until the distribution increase happens, ETP’s streak is the longest active midstream MLP streak (FGP and CQP longer).   New longest active flat distribution streak among midstream MLPs is NKA at 12 quarters and NS at 9.
Another notable winner was QEPM, which debuted on Friday with an opening print that was 10.8% higher than IPO price, but settled Friday afternoon up just 6.0%, still a pretty solid debut relative to WPT (-1.5% Friday).


Year to date, GLP and AMID dropped out of the top 5 this week, replaced by HCLP and LGP.   No changes in the bottom 5, except that most of them were down week over week.


News of the (MLP) World



  • QEP Midstream (QEPM) prices IPO of 20.0mm common units at $21.00/unit (4.76% yield), raising gross proceeds of $420mm
    • Priced at upper end of price range ($21.00), raising $420mm in gross proceeds at 4.76% yield
    • Rose 5.95% in debut
    • GP is public upstream corporation (QEP)
    • QEPM owns midstream assets in Wyoming, Colorado, Utah and North Dakota
  • World Point Terminals (WPT) prices IPO of 8.875mm common units at $20.00/unit (6.00% yield), raising gross proceeds of $175mm
    • Priced at midpoint of the price range, raising $175mm in gross proceeds
    • Dropped 1.5% on its first day of trading
  • DCP Midstream (DPM) prices public offering of 9.0mm common units at $50.04/unit, raising $450.4mm in gross proceeds (press release)
  • ONEOK Partners (OKS) prices public offering of 10.0mm common units at $49.61/unit, raising $496.1mm in gross proceeds (press release)
  • MarkWest Energy (MWE) files S-3 to register up to $1.0bn of common units (filing)
  • Capital Products (CPLP) prices public offering of 11.9mm common units at $9.25/unit, raising $110.1mm in gross proceeds (press release)


  • Plains All American (PAA) prices $700mm of 3.85% senior notes due 2023 at 99.792% of par
  • Western Gas (WES) prices $250mm of 2.60% senior notes due 2018 at 99.879% of par

M&A / Growth Projects

  • EV Energy (EVEP) announces agreement to divest acreage in Ohio’s Utica Shale for $284.3mm to an undisclosed buyer (press release)
  • Lehigh Gas (LGP) announces acquisition of 17 sites in Tri-Cities, TN region for $21.1mm (press release)
    • LGP will purchase 14 motor fuel stations and assume leases for 3 motor fuel stations in the Tri-Cities region
    • LGP will lease or sublease the 17 sites and supply fuel to Lehigh Gas – Ohio, LLC in a 15 year agreement
    • Close expected Q3 2013
  • Kinder Morgan Energy (KMP) and MarkWest Energy (MWE) announce JV to develop Marcellus / Utica processing complex and NGL pipeline to Gulf Coast (press release)
    • JV will pursue two new projects to support producers in the Utica and Marcellus Shales
    • First project consists of development of a 400 MMcf/d cryogenic processing complex in Tuscarawa County, Ohio, utilizing an existing, 220-acre site that Kinder Morgan has under option
    • Second project consists of development of an initial, 200,000 bpd, C2+ NGL pipeline at the planned JV processing facilities in Ohio that will transport NGLs to Gulf Coast fractionation facilities
    • Will compete with BWP / WMB Bluegrass project
  • Suncoke Energy Partners (SXCP) announces acquisition of Kanawha River Terminals LLC  for $86mm (press release)
    • Kanawha River Terminals LLC, a metallurgical and thermal coal blending/handling terminal service provider with the collective capacity to blend and transload over 30mm tons of coal annually
    • Closing expected Q4 2013
  • Spectra Energy Partners (SEP) announces acquisition of transmission, storage and liquid assets of Spectra Energy Corp (press release)
    • SE will receive 172mm newly issued LP units, 3.5mm GP units and $2.2bn cash, and SEP will assume $2.5bn of acquired asset debt
    • Closing expected Q4 2013
  • Teekay LNG (TGP) announces acquisition of one LNG carrier newbuilding from Awilco LNGA ASA for $205mm (press release)
    • Expected delivery of the vessel, currently under construction, is Q3 2013
    • Closing Expected Q3 2013
  • Constellation Energy (CEP) acquires assets for cash and equity from subsidiary of Sanchez Oil & Gas
    • Sanchez now owns a 17.7% interest in CEP


  • Energy Transfer (ETP) announces buyback and retirement of 13.5% of its units from Energy Transfer Equity (ETE) in exchange for 50% of the G.P. interest and incentive distribution rights of SXL (press release)
    • Allows for restart of distribution growth that has been stalled since 2008

Distribution Announcements

  • Increases: SUSP: $0.4828, +3.5%; LGP: $0.4775, +5.5%
  • Variable: TNH: $4.02
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