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October 14, 2013

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Week Thoughts: MLP Deal Hydrant Gushes

While the world awaits the inevitable last-minute deal out of Washington DC that might save the U.S. from a debt default, MLPs are having no trouble doing deals.  Around $7.5bn worth of M&A deals were announced, and nearly $800mm of equity and $750mm of debt priced this week.  Also, HCLP announced a settlement of the Baker Hughes lawsuit albatross.  The MLP index was slightly lower week over week, allowing the S&P 500 to retake the YTD lead once again.  10-year treasuries remained steady, while gold and oil were down.  Gold is now down nearly 30% in the last 12 months!  Natural gas is once again creeping towards the elusive $4.00/mmbtu level, while ethane is still hovering around $0.25/gallon.

Weekly MLP Review_10-11-13

The cap of the MLP M&A hydrant is off and deals are gushing out at the moment.  RGP announced that it would be buying PVR for $5.8bn including assumed debt in a stock for stock deal. So far in 2013 CPNO, PVR and CMLP have all found new dance partners, PNG is being bought back, and MMLP and AMID have new GP owners.  That leaves very few remaining smallish midstream MLPs to be consolidated, until some of the recent private equity backed MLP IPOs get mature enough to be picked off by the big boys.  Of those that are out there, all of them under $10bn in enterprise value have GPs and IDRs, which tend to complicate consolidations.  EPB may eventually be consolidated into its much bigger brother KMP.  BPL, MMP and MWE have no GP IDRs and could potentially be bought by some MLP, but each seems unlikely to sell out any time soon.  Who do you think might be next? Leave a comment with your guess.
Open Hydrant
Last week I posted a 2 question survey.  Thanks to everyone that answered.  The results are interesting.  The vast majority of respondents believe MLPs to be fairly valued, which I guess makes sense given the 15% YOY return for the index and the choppy trading since late May highs.  In terms of what you readers are afraid of, it is a virtual dead heat between (1) some broad market sell off or external factor, (2) rising interest rates, and (3) MLP tax regulation changes.  Oversupply of equity and persistently weak NGL prices were not very popular fears, which makes sense given those headwinds are somewhat self-correcting, or at least they have been historically.
This week I attended and “chaired” the 3rd annual Platts MLP Symposium.  The content was very good, particularly the regulatory update panel that included 3 panelists joining by conference call from Washington DC.  Senator Chris Coons couldn’t make it to Houston for the conference as scheduled, so he joined electronically as well to discuss the MLP Parity Act, which seems to have the most bearing on the future of Wind Energy companies at least until other alternative energy sources can become more competitive with fossil fuels.
I don’t have much else to say this week, although expect some very big announcements from me in the next few weeks on my future, the future of this blog, and my future state of residence…
Winners & Losers
After a few weeks of prices moving without many discernible catalysts, the top and bottom five this week saw their prices move as a direct result of actual news!  SXE was up the most, but HCLP and PVR both had very good weeks as well on their big announcements.  RGP was the big loser on the merger announcement, at least so far.  The other player in the RGP deal, ETE, was up significantly on the announcement, but just flat week over week after sliding Monday and Tuesday.  TLLP was down on the crude release that was announced this week.

Top5Bottom5_10-11-13

We have a new leader for 2013 YTD, HCLP, which displaced PSE for the top spot this week.  AMID jumped back into the top 5 after its strong week.  On the bottom 5, SXE leapfrogged LINE into 3rd worst.

Top5Bottom5_10-11-13_YTD

News of the (MLP) World

News-of-the-World

As mentioned above, the press releases were flying out this week.
EQUITY

  • Western Refining Logistics (WNRL) prices IPO of 13.8mm units at $22.00/unit, raising $302.5mm in gross proceeds at 5.23% IPO yield (final prospectus)
    • Upsized from initial offering of 12.5mm units
    • Another well-received refined products MLP spin off, WNRL opened at $24.00 and closed its first trading session up 9.5% from IPO at $24.10 (4.77% yield)
  • Buckeye (BPL) prices upsized offering of 7.5mm units at $62.61/unit, raising $469.6mm in gross proceeds (press release)
    • Upsized from 6.5mm units
    • Proceeds will help finance the Hess acquisition, announced simultaneously with the equity deal
    • One day bookbuild with tight 2.7% file to price decline
    • The market loved this deal, BPL traded up 5.3% in the session following pricing
  • Plains GP Holdings (PAGP) launches IPO of 128mm Class A shares at $22.00 – $25.00 per share, implying 2.54% IPO yield at the midpoint
    • Price would be the lowest ever GP IPO yield of all time, beating AHGP’s 2.96% and rendering the record on my wall obselete (see below)

AHGP Record

DEBT

  • NGL Energy (NGL) places offering of $450mm of 6.875% senior notes due 2021
  • Memorial Production (MEMP) prices offering of additional $300mm of its 7.625% senior notes due 2021 at 97% of par (8.163% yield to worst)

M&A / GROWTH PROJECTS

  • Regency Energy (RGP) announces stock for stock acquisition of PVR Partners (PVR) in a transaction valued at $5.8bn, including the assumption of $1.8bn of net debt
    • Unit-for-unit transaction at $28.68/unit plus a one-time cash payment, and the assumption of $1.8bn of debt
    • Holders of PVR units will receive a one-time cash payment at closing of the merger estimated at $40mm in the aggregate and 1.020 common units of RGP for each PVR unit held
    • Transaction expected to close in Q1 2014
  • Crestwood Midstream (CMLP) announces acquisition of Arrow Midstream, Bakken Shale midstream operator, for $750mm (press release)
    • Crestwood Arrow Acquisition LLC, a wholly-owned subsidiary of CMLP to acquire Arrow Midstream Holdings, LLC, a privately-held midstream company that owns gathering systems in the Bakken Shale, ND
    • The transaction is expected to be accretive to CMLP’s estimated distributable cash flow per limited partner unit in 2014
    • Regarded by some banker friends of mine that looked at the deal with other bidders as a good deal relative to what they thought it would go for
    • Arrow assets include substantial crude oil, natural gas and water gathering systems located on the Fort Berthold Indian Reservation in North Dakota’s Bakken Shale
      • 150 miles of crude oil gathering pipeline, 160 miles of natural gas gathering pipeline and 150 miles of water gathering lines, as well as associated salt water disposal wells, and a 23-acre central delivery point with multiple pipeline take-away outlets and a fully-automated truck loading facility
      • Current volumes on the system are ~150,000 bbls/d of crude oil, 15 MMcf/d of rich natural gas and 8,500 bbls/d of water
  • Buckeye (BPL) announces acquisition of refined products terminals from Hess for $850mm (press release)
    • Regarded by some banker friends of mine that looked at the deal with other bidders as an expensive deal relative to what they thought it would go for (typically the case with bankers representing losing bidders…)
      • Marine Terminals located on the East Coast and in the Caribbean
      • Acquisition will consist of 20 liquid petroleum products terminals with total storage capacity of approximately 39mm barrels for $850mm
      • The acquisition, subject to regulatory approvals and customary closing conditions, is expected to close before year-end
  • Kinder Morgan Energy (KMP) announces pipeline expansion into Eagle Ford Shale for $74mm (press release)
  • New Source Energy (NSLP) acquires working interests in Oklahoma for $13.4mm

OTHER

  • Tesoro Logistics (TLLP) experiences pipeline release of crude oil to soil of 20,000 bbls near Tioga, ND ($4mm expected cleanup cost) (more here)
  • Hi-Crush (HCLP) announces settlement of Baker Hughes lawsuit and entry into a 6-year supply agreement for sale of frac sand (press release)
    • Amicable settlement, no contract terms, volumes or pricing were disclosed on the agreement

DISTRIBUTIONS

  • Increases (quarter over quarter):
    • GEL: $0.522, + 2.3%
    • TEP: $.02975, +3.5%
  • Flat: TGP ($0.675), TOO ($0.5253)

 
 
 

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