June 7, 2015
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MLPs were hit hard in a broad-based sell off that saw the Alerian MLP Index decline 2.5% this week. The focus appeared to be a combination of negative factors, including: volatile oil prices, spiking interest rates (+29 bps this week), collapsing propane prices (new multi-year low), and fear over an OPEC surprise that didn’t materialize. MLPs did fare better than utilities, but again underperformed the S&P 500.
There were two MLP analyst days this week, and the market reacted negatively to both. With those events behind us, MLPs are entering a quiet period for scheduled MLP-specific news. The last couple of months, we’ve had a fire hose of data points and chances for MLPs to remind the market of their story (first quarter distribution and earnings announcements, analyst days, NAPTP conference, etc.). From here until around mid-July, the MLP-specific news flow should be little more than a trickle.
We will continue to see equity deals, hopefully balanced by M&A and growth project announcements. M&A is probable (especially drop downs), but I’m not holding my breath for a spate of new growth project announcements. That leaves MLPs to trade based on oil prices, storage reports, and interest rates, which may offer opportunities to buy MLPs that will have positive MLP-specific news at their next opportunity.
Poll Question
In the midst of the current oil correction, the chatter around U.S. oil exports seems to be gaining some steam. In light of that, this week I wanted to get your take on who wins if the oil exports ban were to be lifted, with the following poll question.
Sorry, there are no polls available at the moment.
Global Listed Infrastructure
I wanted to highlight quickly a brief interview with CBRE Clarion’s Jeremy Anagnos on the topic of listed infrastructure that was published last week at the website of Institutional Real Estate, Inc (IREI). Jeremy is the senior portfolio manager for the MLP strategy I help manage and for the global listed infrastructure strategy we run as well.
Listed infrastructure was a totally new concept when I joined CBRE Clarion a few years ago, but it means we invest in public companies with infrastructure assets anywhere in the world. Infrastructure includes utilities, airports, toll roads, railroad operators, and of course midstream companies (and MLPs). It means we can invest in global companies that may benefit when MLPs might be out of favor.
Winners & Losers
Winners were few and varied this week. No trends, a mix of small caps, an upstream MLP and a super drop down MLP. On the downside, FGP announced a large acquisition and an equity deal, neither of which were well received. There was no news among others in the bottom 5, but on weeks like this when MLPs are seeing wholesale selling, smaller MLPs (like DKL and RRMS) tend to see exaggerated moves.
Not pictured below, 3 of the largest MLPs had news or events this week, and only one of them outperformed the index: EPD -2.7%, PAA -2.0% and MWE -3.8%.
Year to Date
DKL’s poor performance dropped it from the top 5 year to date, replaced by TLP. On the downside year to date, WLKP moved up, making the bottom 5 the exclusive domain of upstream and coal MLPs, which seems about right.
General Partner Holding Companies
For the second straight week, there were less than 5 GPs with positive performance, and for the second straight week, the median GP return matched the AMZ’s performance. WGP rallied on Friday, but was crushed Thursday when APC was marketing a secondary of WGP units. OKE and WMB were probably down on weaker NGL prices. EXH management was making the rounds with institutions discussing their pending spin off of EXH’s international assets. PAGP had a volatile week, but managed to squeak out a gain.
News of the (MLP) World
PTXP picked a bad week to go public, but managed to price their IPO at the midpoint. There were two other equity deals that likewise struggled. On the M&A front, several transactions were announced this week, totaling around $3.2bn in value. Also, the Delaware basin appears to be short processing, as MWE announced a plant there just a few weeks after EPD announced one. These two well-capitalized new entrants join a crowded group of midstream MLPs planning to capture volumes in the region with new processing capacity.
Equity
M&A / Growth Projects
Other