August 11, 2013
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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.
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).
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.
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