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November 16, 2014
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MLPs finished the week down 0.6%, saved from a worse print by a 1.3% positive move on Friday. The equal weight MLP index lagged the cap-weighted version by 80 basis points, continuing the trend discussed here last week. The MLP index remains 5.7% below its peak at the end of August, but 11.2% higher than its mid-October low.
But again, oil’s slippery slide was the big story. The U.S. benchmark oil futures price was down another 3.5% this week, with futures closing the week just under $76.00/bbl, around 23% lower than the spot price at the end of 2013. Natural gas gave back its gains from last week, and dragged ethane down with it, both were down more than 7%. MLPs held up pretty well given oil’s continued decline, but they are stuck in neutral post-earnings. The Energy Transfer family of MLPs is holding its highly-anticipated analyst day this week, which may provide some catalysts to get MLPs back in gear.
MLPs, Oil and Interest Rates
At the request of a reader, below is a 10 year chart of the MLP Index compared with the price of oil and the interest rate on 10-yr US treasuries. Not sure there is much to glean from the chart below, particularly given how different the MLP sector is today as compared with even just a few years ago. Over the long term, MLPs have been fairly consistently higher as interest rates bounced around and oil stagnated after an initial bounce coming out of the financial crisis.
Below is a chart that illustrates just how much the sector has changed. It’s a histogram of the 121 MLPs based on how old they are. While about 77% of the sector’s market cap is 5+ years old and the cap-weighted average age of all MLPs is 11.4 years, the median age of all MLPs is 3.6 years. 66 MLPs, more than half of the sector, has been public less than 5 years. Growth rates of those newer MLPs are much higher and with all the drop downs, those newer MLPs will grow much larger in the coming years as the sector continues to evolve.
Winners & Losers
QEPM reversed its recent downtrend this week and led all MLPs higher. QEPM’s strong week was likely a read through from the slightly better deal EPD gave to OILT when the final merger terms were announced this week. TLLP already announced their intention to take out the remaining units of QEPM at some point following the close of the acquisition of QEPM’s general partner. If OILT and ACMP got improved deals on their mergers, perhaps QEPM investors will get a reasonable premium when its special committee negotiates its merger.
Speaking of OILT, it made the top 5 this week as well, based on the aforementioned agreement to merger terms with EPD. TCP also had a strong week on the back of its GTN drop down announcement (see news section below).
On the downside, IPOs GLOP and RIGP, both 2014 IPOs with drop down stories and foreign parent companies, both made the list. This comes on a week when fellow 2014 IPO Abengoa Yield, a yieldco with a drop down story and a foreign parent company, was down as much as 35.2% this week and closed 17% down week over week. Questions about that company may have bled over into some of the foreign-backed MLPs.
DM took a break from the top five this week for the first time since its IPO. RNO made it 4 straight weeks in the bottom 5, down another 11.8%.
Year to date, OILT popped back into the top 5 this week, displacing EQM. QEPM clawed out of the bottom five, while NKA and RNO sunk deeper. Both leaders (PSXP and TEP) dropped this week, but maintained their substantial leads over the rest of the sector.
News of the (MLP) World
No big M&A and a lot fewer earnings releases made this week feel downright peaceful.
Two more MLP IPOs did file initial registration statements this week (Smart Sand and Azure), bringing the total number of MLP IPOs on file to 13 (see table below for complete list), to go with 17 MLP IPOs so far this year (not counting Landmark Infrastructure, which falls in the non-energy MLP category. One of those 17 MLP IPOs came this week, and it was not very well received, pricing at a near record yield, but in the wrong direction.
Equity
Debt
M&A / Growth Projects
Hamm History