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November 10, 2013

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Week Thoughts: MLP Fatigue Season

MLP prices were down for the second straight week, which is not unusual for distribution ex-date season, particularly when that season is accompanied by a seemingly constant barrage of new MLP paper (mostly IPOs).  There is probably also some rotation out of MLPs and into other stocks, as evidenced by 5 straight positive weeks for the S&P 500, which closed this latest week at yet another all-time high.   Hot money is clearly finding more exciting places than MLPs these days (see Twitter IPO).  There was not much movement in oil or natural gas prices this week, but there was a big move in interest rates, which spiked 14 basis points Friday after the release of a better than expected jobs report.
Weekly AMZ_11-8
I don’t think the recent MLP swoon is much more than normal seasonality, combined with IPO fatigue and some weaker than expected earnings.  Recent MLP weakness may develop into something more serious, but two weeks don’t make a trend.  November on average has been the worst month of the year for MLPs (-0.95%), but that’s counting the outlier 2008 November that saw a -17.1% total return.  November (-0.24%) trails only May (-0.36%) in terms of worst median returns for the Alerian MLP Index since 1996.  November has been a very good time of year to load up on MLP units.  So in a few weeks, on Black Friday, while hordes of unwashed coupon-ers flock to retail outlets (and increasingly to, its probably not a bad idea to pick up some more units of your favorite MLPs for the holiday season.
Below is a chart with the above-referenced interest rate spike, as represented by the US 10-year treasury rate.  Rates remain low, but rates will rise if the good news keeps rolling in and it starts to feel like the Fed’s extra liquidity isn’t quite so necessary going forward.
Winners & Losers
Above I mentioned that we’ve seen some weak earnings releases so far in earnings season.  CLMT’s release this week was one of the worst such ugly report.  CLMT reported negative distributable cash flow for 3Q (which follows negative DCF for 2Q, and makes LTM distribution coverage something like 0.3x), which was attributed to really weak Fuel Products results (expected by everyone) and really weak Specialty Products results (expected by very few).  CLMT’s unit price took the biggest tumble of all MLPs this week, down 12.7%.  BWP was down 7% this week, as it seems like investors that didn’t like last week’s earnings were waiting for the ex-date to sell.  Same story for EXLP and CPLP, each down more than 7% for the week.
On the positive side of the MLP ledger, sort of proof that ex-dates matter, none of the top 5 had their ex-dates this week.  WES was up on results that blew away expectations.  WES also raised EBITDA guidance and lowered maintenance capex outlook, which should help the good times continue to roll.  OILT and SUSP likewise were up on positive earnings releases.  WNRL was up 6.5% on several research initiations, which helped remind the market that it exists among the heavy flow of new MLP names.


The YTD chart of winners and losers is more or less calcified into what we’ll see at year end on the margins of MLP performance, but there was some movement within the constituents this week.  PSE took a tumble from the top spot all the way down to number two, and SXE switched places with FISH on the bottom five list.


News of the (MLP) World


Plenty of action this week for MLP press releases.  Even with two MLP IPOs and a tightly priced EPD follow-on, the news of the week was NGL Energy’s $890mm acquisition.  It appears to be a good deal at 7.5x next 12 months EBITDA, but with high quality, growth midstream assets going for much more than 10x EBITDA, a 7.5x multiple almost seems too cheap.  But tough to complain about that vs. some recent acquisitions that are huge upfront multiples, betting on massive volume ramps (such as APL/Teak and WPZ/Caiman, among others).  Time will tell, but what’s clear is NGL and its CEO Mike Krimbill are serious about growth, acquiring nearly $3.0bn in assets since May 2011 IPO (pro forma the Gavilon acquisition) and growing pro forma enterprise value about 10x from $320mm at IPO to more than $3.0bn.  The acquisition prompted Ethan Bellamy and his research team at Baird to call for SEMG / RRMS to replace outgoing CEO Norm Szydlowski with Krimbill via a merger of some kind.  If NGL keeps growing like it has, Krimbill will be able to buy SEMG / RRMS a couple times over in a year or two…


  • Dynagas LNG Partners (DLNG) launches MLP IPO of 12.5mm common units to raise $250mm (click here for roadshow presentation)
    • Price range of $19-$21/unit, implying a 7.30% IPO yield
    • Has elected to be considered a corporation for federal tax purposes and therefore will not issue a K-1
    • DLNG owns 3 LNG tanker ships, sponsor owns 10 tankers
    • Expected to price 11/12 (Tuesday)
    • Will be the 6th MLP IPO in 4Q and 18th overall in 2013
  • Midcoast Energy (MEP) prices IPO of 18.5mm common units at $18.00/unit, raising $333.0mm in gross proceeds
    • IPO yield of 6.94%
    • Opened at $17.00, closed at $17.41 on its first day of trading, down 3.3% from IPO price
    • MEP owns 39% controlling interest in Midcoast Operating, which owns a network of natural gas and NGL gathering and transportation systems, natural gas processing and treating facilities and NGL fractionation facilities primarily located in Texas and Oklahoma
    • EEP is the general partner of MEP, and is expected to drop down the remaining interest in Midcoast Operating over time
  • Arc Logistics (ARCX) prices MLP IPO of 6.0mm common units at $19.00/unit, raising $114.0mm in gross proceeds
    • IPO yield of 8.16%
    • Closed first day of trading unchanged at $18.00/unit
    • Owns:
      • 14 terminals in the East Coast, Gulf Coast and Midwest regions of the U.S. with approximately 5.0mm barrels of crude oil and refined products storage capacity
      • Two rail transloading facilities near Mobile, Alabama with ~23,000 bpd of throughput capacity (~17,000 bpd dedicated to crude oil throughput)
      • 10.3% interest in LNG facility in Mississippi (majority owned by affiliate of Kinder Morgan), which has 320,000 cubic meters of LNG storage, 1.5 bcf/d natural gas sendout capacity and interconnects to major natural gas pipeline networks
    • ARCX was formed by Lightfoot, an MLP incubator owned by a group of financial sponsors and ATLS
  • NGL Energy (NGL) announces $240mm private placement as part of its big acquisition announced this week (press release)
    • Priced at $29.59/unit, 6.2% discount to prior close
    • Will close in December 2013
  • Enterprise Products (EPD) prices public offering of 8.0mm common units at $62.05/unit, raising $496.4mm in gross proceeds
    • EPD announces full exercise of the 1.2mm common unit overallotment option, raising an additional $74.5mm in gross proceeds
    • Priced at a 2.25% discount to prior close, and traded up 0.8% in the next session
    • EPD’s second follow-on offering of 2013, first time since 2010 that EPD has executed multiple equity offerings in a single year
  • Centerpoint Energy discusses MLP IPO plans
    • Centerpoint owns 58.3% of its midstream JV called Enable Midstream Partners (OGE Energy owns 28.5% and ArcLight Capital owns 13.2%)
    • Centerpoint CEO said the company is still moving forward with its IPO, but also said it was exploring other alternatives to get public and create more shareholder value (I guess like Devon Midstream did with Crosstex?)
    • If the IPO moves forwrad, its likely a 2014 event, and whenever it happens, it will be highly anticipated


  • Buckeye (BPL) prices $800mm debt offering
    • Offering included $400mm of 2.65% senior notes due 2018 priced at 99.823% and $400mm of 5.85% senior notes due 2043 priced at 98.581%

M&A / Growth Projects

  • NGL Energy (NGL) announces $890mm acquisition of Gavilon, a diversified midstream business owned by Ospraie Management, General Atlantic and Soros Fund Management (press release)
    • Gavilon operates integrated crude oil storage, terminal and pipeline assets located in Oklahoma, Texas and Louisiana
    • Gavilon owns a 50% stake in Glass Mountain Pipeline, 4.14mm owned and 3.85mm leased bbls of storage in Cushing OK, a marine terminal and 9 truck terminals.  In addition, Gavilon markets and supplies refined products and NGLs through network of 300+ distribution terminals across 39 states
    • NGL estimates the purchase price represents a 7.5x 2014E EBITDA multiple
    • Maintenance capex expected to be less than 5% of EBITDA for the next several years
    • Expected to close in December 2013
  • LINE ups offer for BRY, increasing the exchange ratio from 1.25 to 1.68, increasing its valuation to $4.9bn (press release)
  • MarkWest Energy (MWE) announces development of additional 200 mmcf/d cryogenic gas processing plant at its Sherwood complex in West Virginia (press release)
    • MWE to construct a fifth 200 mmcf/d processing plant, raising total processing capacity at Sherwood to 1 Bcf/d
    • New plant to be supported by long-term fee-based contracts with Antero Resources
  • Summit Midstream (SMLP) announces expansion of its throughput capacity at Mountaineer Midstream to 1,050 MMcf/d via a loop that will add 500 MMcf/d of capacity to accomodate higher expected natural gas production from Antero Resources Corp from areas in West Virginia (press release)
    • Mountaineer Midstream feeds MWE’s Sherwood plant
  • Crosstex (XTEX) announces completion of phase 1 of Cajun Sibon NGL expansion project (press release)
    • Phase 2 to be completed second half of 2014
  • Oiltanking (OILT) announces $200mm of additional crude expansion projects (press release)
    • OILT to construct two new crude oil pipelines connecting its Houston terminal with Crossroads Junction for $98mm
    • OILT also plans new phase of construction at OILT’s Appelt facility to add a total of 3.5mm bbls of new storage for a total cost of $101mm
  • Calumet Specialty Products (CLMT) announces that its San Antonio refining subsidiary has deal with TexStar Midstream to source Eagle Ford crude oil via pipeline (press release)


  • LGP: $0.5025, +5.2%
  • BBEP switches to monthly distributions, joining fellow older upstream MLPs LINE and VNR
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