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September 28, 2014

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Week Thoughts: MLP IPO Line Forms Here

MLPs had a rough week, and it was roughest on small cap MLPs.  The Alerian MLP Index was down 2.1%, while the Alerian MLP Equal Weight Index was down 3.1%.  KMP had a positive week, which helped the cap-weighted MLP Index.  It was the worst week for the MLP Index since the last week of July when the index was down 4.2%, but before that the first week of December was the last time the index was down 2%+ week over week. For the month so far, the MLP Index is down 2.5%, not wholly unexpected following the +8.2% August.  The week did finish on a high note, with the index rising 1.1% Friday.
Weekly MLP Review_9-26-14
MLPs weren’t alone.  The S&P 500, which finished last week just below its latest all-time high (achieved last Thursday), turned sharply negative Monday and Tuesday of this week, and finished down 1.3%.  Utilities followed a similar pattern, down 1.6% for the week.  Commodities bounced back a bit this week.  Oil was up 1.9% and natural gas inched back up to $4.00/mmbtu.
It wasn’t all bad.  It has been since last June since the MLP Index had a 2% down day, and since last may since we’ve had 3 straight 1% decline days.  A few weeks ago, the index was down more than 2% intra-day, but rallied late to avoid it.
This week, after 2 straight 1% decline days, the MLP Index was down more than 1% on Wednesday, but rallied to finish Wednesday up slightly.  Avoiding sharp single day selloffs and sustained selloffs is a good sign for MLP demand.  Dips are more shallow and bought more quickly.
Also, October has historically been a strong month for MLPs, with average returns the last 18 years of 2.4%.  So, there’s always that to look forward to.
IPO Backlog Updated
As outlined in the news section below, there was quite a bit of action in the MLP backlog this week.  As an update, there are now 10 MLP IPOs on file, with at least another 3-5 companies that have publicly announced plans for MLPs (Sempra, Rice Energy and Energy Transfer’s LNG facility come to mind).
IPO backlog_9-26
Winners & Losers
CNNX was far and away the biggest winner, up 34.2% since its debut Thursday.  Beyond that, positive returns were sparse this week.  Coal MLPs had a rough week, with NRP and ARLP making the bottom 5.  HCLP and NMM made the bottom 5 for the second straight week.
Top5Bottom5_9-26-14
Top5Bottom5_9-26-14_chart
Year to date, NRP dropped to second worst in the sector, replacing BWP.  HCLP dropped out of the top 5, replaced by RRMS.
Top5Bottom5_9-26-14_YTD
Top5Bottom5_9-26-14_YTD_chart
News of the (MLP) World
There was quite a bit of IPO filing action this week, with 4 fresh initial S-1s filed, including 3 on a single day. In addition, we saw another $1.4bn worth of drop-down acquisitions announced, around another $1.0bn of third party M&A and growth projects combined, $709mm worth of follow-on deals, and the greatest MLP IPO pop of all time.  All of the follow-on equity action happened in a very weak tape for MLPs, which goes to show that once MLPs get their name called for a slot in the equity calendar, they are taking it.  To help soak up some of that equity, there was a $1.4bn MLP-focused closed end fund that priced Thursday.
Equity

  • CONE Midstream (CNNX) prices IPO of 17.5mm unit at $22.00/unit, raising $385mm in gross proceeds (filing)
    • Yield of 3.86% based on minimum quarterly distribution of $0.85/unit
    • Lowest IPO yield since VLP in December of last year (VLP is tied for lowest ever with PSXP at 3.70%)
    • Debut trading session: opened at $28.50 (+29.5%), and went higher, closing at the high of the day at $30.40 (+38.2%, the biggest IPO pop ever for an MLP)
    • Below is an updated list of the top 10 IPO pops, which shows that 5 of the top 10 of all time have happened in the last 18 months, and 7 of the last 12
    • Recent IPOs have moved 2 other MLPs out of the top 10 that went public in the last 12 months (VLP +21.7% and PBFX +20.4%)

IPO pops_9-26-14

  • Genesis Energy (GEL) prices public offering of 4.0mm units at $50.71/unit, raising $202.8mm in gross proceeds (press release)
    • Overnight offering, priced at 4.4% discount to prior close
    • GEL last issued equity around 12 months ago (9/11/13) at $47.51/unit
  • Martin Midstream (MMLP) prices public offering of 3.0mm units at $36.91/unit, raising $110.7mm in gross proceeds (press release)
    • Overnight offering, priced at 4.2% discount to prior closing price
    • MMLP units traded up 0.9% from pricing in the next trading session
    • Offering was MMLP’s second this year, prior deal priced at $41.51/unit
  • Seadrill Partners (SDLP) prices public offering of 8.0mm units that raised $256mm in gross proceeds (press release)
    • Overnight offering, discount unclear given lack of per unit disclosure on the offering, but units traded down 4.6% on the next trading session following pricing
    • Third equity offering this year following a deal in March and one in June, all done around this price (total equity raised across all 3 offerings: $817mm)
  • GasLog Partners (GLOP) prices public offering of 4.5mm units at $31.00/unit, raising $139.5mm in gross proceeds (press release)
    • Overnight offering, priced at 4.0% discount to prior closing price
  • JP Energy Partners (JPEP) launches $275mm MLP IPO with 6.50% midpoint yield (filing)
    • JPEP is backed by private equity firm ArcLight
    • JPEP has 4 business segments: crude oil pipelines and storage, crude oil supply and logistics, refined products terminals and storage, and NGL distribution and sales
    • JPEP is selling a 37.7% L.P. interest to the public
    • JPEP expects $66.8mm in EBITDA, $56.8mm in distributable cash flow, and 1.2x distribution coverage over the next 12 months
  • PES Logistics Partners (PESL) files initial registration statement for $250mm MLP IPO (filing)
    • PESL owns a 45% interest in a crude oil rail unloading terminal at its sponsor’s Philadelphia refinery complex
    • PESL has a 10-year, fee-based agreement with sponsor
      • Includes minimum volume commitments and inflation escalators
    • Carlyle acquired the Philadelphia refinery complex in 2012 from Sunoco, Inc.
    • PESL will grow through buying the remaining interest in the rail unloading terminal, and through buying additional ROFO assets being developed by PESL’s sponsor
  • Mammoth Energy Partners (TUSK) files initial registration statement for $100mm MLP IPO (filing)
    • TUSK is backed by Wexford Funds and Gulfport Energy Corp (GPOR)
    • Oilfield services MLP that engages with completion and production services (including production and sale of proppant), contract land and directional drilling services, and remote accommodation services
    • Variable distribution MLP with no IDRs
  • Hess Midstream Partners (HESM) files initial registration statement for $250mm MLP IPO (filing)
    • Midstream MLP sponsored by Hess Corp, to operate and develop fee-based midstream assets to serve Hess and other producers
    • Initial assets include a 30% interest in Hess TGP Operations LP (which owns the Tioga Gas Plant in North Dakota), the Mentor Storage Terminal in Minnesota, and a 50% interest in Hess North Dakota Export Logistics Operations LP (which owns rail and truck facilities in the Bakken)
    • HESM will grow by acquiring assets from Hess primarily, but will pursue growth projects and third party acquisitions
  • Exmar Energy Partners (XMLP) files initial registration statement for $125mm MLP IPO (filing)
    • XMLP’s general partner owned by EXMAR NV, a European public company trading on the Brussels exchange
    • XMLP will own and operate floating LNG infrastructure assets under long-term charters
    • XMLP’s initial portfolio of assets will include interests in four LNG regasification vessels (LNGRV) and one LNG carrier
    • XMLP will have projected distributable cash flow over the next 12 months of $28.2mm
  • Atlas Resource (ARP) prices public offering of 3.2mm 8.625% Class D cumulative redeemable perpetual preferred units at $25.00/unit, raising $80mm in gross proceeds (press release)
    • This is ARP’s first preferred unit offering, although affiliate Atlas Pipeline Partners issued $110mm of preferred units earlier this year with a 8.25% coupon

M&A / Growth Projects

  • Susser Petroleum (SUSP) announces drop down acquisition from Energy Transfer (ETP) for $768mm (press release)
    • SUSP to acquire Mid-Atlantic Convenience Stores, LLC from ETP for $768mm, financed with $556mm in cash and 4.0mm new SUSP units issued to ETP
    • Mid-Atlantic Convenience Stores consists of 110 company-operated retail convenience stores and 210 dealer-operated and consignment sites across Virginia, Washington DC, Maryland, Tennessee and Georgia
  • SUSP announces acquisition of Hawaii-based Aloha Petroleum for $240mm
    • Third party acquisition of 6 terminals and 100 Mahalo branded stations
    • Purchase price represents a 7x EBITDA multiple
  • Western Refining Logistics (WNRL) announces $360mm drop down acquisition (press release)
    • WNRL to acquire parent WNR’s southwest wholesale business, which includes:
      • Fuel sales of ~79,000 bbls/d to third party customers and to WNR’s retail and unmanned cardlock locations
      • Rapidly growing crude oil trucking operations in the Permian and San Juan basins
      • A lubricant products distribution business
    • WNR and WNRL will enter into 10-year fuel supply and crude oil trucking agreements containing certain minimum volume commitments by WNR
    • Expected 2015 EBITDA of $40mm, which implies a 9.0x EBITDA multiple
  • Magellan Midstream (MMP) announces open season for 600-mile Niobrara pipeline with up to 400,000 bbls/d of capacity from the Niobrara facilities to Cushing, OK (press release)
    • Another in a string of Niobrara to Cushing crude pipeline announcements the last few weeks from various MLPs (RRMS, NGL, EPD)
    • There will be intense competition for customers and some of these announced potential pipelines won’t get built right away
  • Tallgrass Pony Express Pipeline, LLC announces potential expansion of crude pipeline system to serve Niobrara customers with access to Cushing, OK (press release)
    • Pony Express is 33.3% owned by Tallgrass Energy Partners (TEP), and 66.6% owned by TallGrass Development
    • Speaking of Niobrara crude pipeline competition, here is another one, and given existing Pony Express footprint, this is probably more likely than a straight greenfield pipeline
    • Pony Express Pipeline is expected to be in service in late Q3 2014 and runs from Guernsey, Wyoming to Cushing
  • Atlas Resource (ARP) announces $225mm acquisition of Eagle Ford Shale oil and natural gas properties (press release)
    • ARP to acquire 12 mmboe of net proved reserves with daily production expected in 2015 of 1,900 boe/d (87%, 7% NGLs and 6% natural gas) from 22 producing wells
    • In connection with the acquisition, the upstream development subsidiary of ARP’s parent (ATLS) will acquire 8 wells that have been drilled but not completed and 53 undeveloped drilling locations for ~$115mm
  • ONEOK Partners (OKS) announces $480mm to $680mm worth of additional processing plant projects (press release)
    • OKS will construct (1) a new 80 mmcf/d natural gas processing facility and related infrastructure in northwest Dunn County, North Dakota and (2) a new 100 mmcf/d natural gas processing plant and related infrastructure in Campbell County, Wyoming to serve producers in the
  • EV Energy (EVEP) announces sale of its interest in Cardinal gas Services to E1 and a Korean consortium led by Samchully for $162mm (press release)
  • Dynagas LNG (DLNG) announces LNG carrier acquisition from Dynagas Holdings for $257.5mm (press release)

Other MLP News

  • Susser Petroleum (SUSP) to change its name to Sunoco LP and its ticker symbol to SUN
    • SUN was the old symbol for Sunoco, Inc. that traded on the NYSE for nearly 87 before ETP acquired SUN in 2012
    • This corporate name change will align the name with the name on the gas stations that SUN will eventually own
    • SUSP went public on 9/19/2012, and a little over two years later, the Susser name will longer have a place in the MLP space.  Things are moving pretty fast these days, especially for small MLPs
  • Constellation Energy Partners (CEP) to change its name to Sanchez Production Partners (SPP), effective after the market closes on 10/3 (press release)

Canadian Midstream

  • Enbridge Income Fund (Toronto: ENF) announces acquisition of 50% interest in the US segment of the Alliance Pipeline and cash flow interests in the Southern Lights Pipeline for a combined $1.76bn from Enbridge, Inc. (press release)
    • ENF priced a $337mm bought deal equity issuance to help fund the transaction
    • These assets were not on the list of potential drop down assets to Enbridge Energy Partners (EEP) that was presented at EEP’s analyst day in April
  • Veresen (Toronto: VSN) announces acquisition of 50% preferred interest in Ruby Pipeline from Global Infrastructure Partners for $1.4bn (press release)
    • KMP owns the remaining 50% of the pipeline and will continue to operate the pipeline
    • This pipeline takes natural gas from the Rockies up to Oregon where it can potentially link up with the to-be-built Pacific Gas Connector pipeline to feed into the to-be-contracted and to-be-built LNG export facility at Jordan Cove

o   Williams Partners (WPZ) is VSN’s partner on the Pacific Gas Connector pipeline

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