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June 7, 2015

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Week Thoughts: MLP Analyst Daze

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.
Weekly Review_6-5
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%.
Top5Bottom5_6-5-15
Top5Bottom5_6-5-15_chart
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.
Top5Bottom5_6-5-15_YTD
 
Top5Bottom5_6-5-15_YTD_chart
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.
Top5Bottom5GPs_6-5-15
 
Top5Bottom5GPs_6-5-15_chart
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.
News-of-the-World
Equity

  • PennTex Midstream (PTXP) priced IPO of 11.25mm units at $20.00/unit, raising $225mm in gross proceeds (press release)
    • Midpoint price represented a 5.5% initial yield
    • PTXP opened at $20.95 (+4.7%), traded as high as $21.02 and as low as $19.20, before closing at $19.48 (-2.6%) on its first trading session
  • Western Gas Equity (WGP) announced pricing of secondary offering of 2.0mm units owned by sponsor Anadarko (APC) at $58.20/unit, raising $116.4mm in gross proceeds for Anadarko (press release)
    • The WGP unit sale was executed concurrently with an offering of 8,000,000 WGP-linked tangible equity units (TEU) with a stated amount of $50/unit and a 7.5% coupon, netting APC around $387mm in proceeds
    • Each TEU includes a prepaid equity purchase contract and a senior amortizing note, that will settled in 3 years through delivery of WGP or APC units
  • FGP priced public offering of 6.325mm units at $23.00/unit, raising $145.4mm in gross proceeds (press release)
    • One-day marketed offering with a file-to-price decline of 5.3%

M&A / Growth Projects

  • Enterprise Products (EPD) announced acquisition of EFS Midstream from Pioneer Natural Resources and Reliance Industries Limited for $2.15bn (press release)
    • EFS Midstream provides natural gas gathering, treating, compression and condensate processing services in the Eagle Ford Shale
    • Pioneer and Reliance will dedicate their combined Eagle Ford acreage to EPD under 20-year, fixed-fee gathering, agreement that includes a minimum volume requirement for the first 7 years
    • The sellers will also enter into a 20-year fee-based agreement for natural gas processing, NGL transportation and fractionation, and for natural gas, condensate and crude oil transportation services
    • Acquisition will close in 3Q15, with EPD paying in two installments over the next year
    • EPD management described it as immediately accretive and as a “bolt-on” acquisition
  • Ferrellgas (FGP) announced acquisition of Bridger Logistics, LLC for $837.5mm (press release)
    • Bridger provides integrated crude oil logistics services (trucking, terminaling, pipeline, rail and maritime) across 14 U.S. states
    • FGP will pay $562.5mm in cash and will issue 11.2mm FGP units to the seller
    • FGP expects Bridger assets to produce $100mm in EBITDA over next 12 months (8.4x implied multiple)
    • With the transaction closing, FGP announced it intends to increase distribution by 2.5%
    • Will be the first distribution increase ever for FGP, which went public in 1995
  • MarkWest Energy (MWE) announced plans to construct a new 200 mmcf/d natural gas processing plant in the Delaware Basin in West Texas (press release)
    • The plant (in-service 2Q 2016) will support new long-term, fee-based commercial agreements with Chevron and Cimarex
    • Represents a new basin for MWE
  • Westmoreland Resource (WMLP) announced acquisition of Kemmerer Mine from sponsor Westmoreland Coal for $230mm (press release)
    • Financed with $135mm in cash, $20mm in WMLP units, and $75mm in WMLP Class A convertible units that will PIK until converted within 12 months of closing

Other

  • Enable Midstream (ENBL) announced resignation of CEO Lynn Bourdon (press release)
    • OGE Energy CEO Pete Delaney to take over
    • Resignation was a surprise to the market, and ENBL units traded down on the news
  • CrossAmerica (CAPL) announced distribution increase of 0.9% quarter over quarter
  • The U.S. Environmental Protection Agency (EPA) released a statement saying it had found no evidence that the hydraulic fracturing process has caused “widespread systemic impacts on drinking water” (Fuel Fix)
    • Findings based on a five year probe into well integrity in areas where waste water was spilled above ground
    • The EPA found that there were instances where fracking-related activities related to releases that have impacted surface and ground water, but the number of documented impacts to drinking water is relatively small when compared to the number of fractured wells
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