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February 12, 2017
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MLPs were little changed this week overall, finishing down 0.4% overall, for a nice round 7.5% total return for the year overall, well ahead of the S&P 500, utilities and oil prices. Oil prices were volatile this week, but remain comfortably above $50/bbl. Gas prices remain above $3.00/mmbtu, but with much less of a cushion than at the beginning of the year.
Time Has Passed
We are now getting to the fun part of the recovery, where the most painful point of the collapse is a full year behind us, and the pain is starting to fade (but the lessons learned are still front and center). The MLP Index is up 77% year over year as of Friday, and the Cushing 30 of just midstream names equal weighted is up 92% not including distributions. Both are up less than oil and propane prices at more than 100% each. Staggering numbers that highlight the strong recovery, but also the violent selloff that preceeded it.
The sector continues to evolve and faces challenges to continue the recovery. But, with this week’s post, I’m not going to whine about persistent equity overhangs, having to wait until the second half of the year for volumes to recover, or ongoing sub-1.0x distribution coverage for MLPs growing their distributions.
I’d rather pause and reflect on the positive. The health of the sector is massively improved from this time last year, with a significantly brighter outlook given the ramp in drilling activity and ongoing MLP consolidation and rationalization. Also, the equity capital market is functioning much better, and debt capital markets are wide open. And yet, valuations remain at reasonable levels, considering trough volumes for basins outside the core of the core onshore basins.
Winners & Losers
AM was the best performing midstream MLP this week, even with an equity offering, due to its downstream integrating joint venture with MPLX. On the downside, the reality of another weak winter for heating is taking its toll on FGP and NGL, both of which have propane distribution businesses.
NBLX didn’t make the top five this week, which may be a first for the year so far, but its chart remains one of the most incredible ever for an MLP in its first several months of trading.
YTD Leaderboard
Year to date, the two Teekay MLPs are both in the top 5, with TGP on top. OKS dropped a bit this week, but remains the best performing big cap MLP, even though it won’t be an MLP much longer. EEP remains an outlier on the downside, with no other MLP down more than 10%.
General Partners and Midstream Corporations
GPs and midstream corps underperformed MLPs this week (just 3 were positive), and they remain a volatile group week to week (ENLC and PAGP went from best to worst this week). PAGP way underperformed PAA this week, bleeding off much of the premium that it has maintained consistently since closing the simplification in late 2016. ETE didn’t make the top 5 despite its recent run of positive news on pipeline approvals, perhaps weighed down by the shelf filing this week.
News of the (MLP) World
Very heavy capital markets week for the MLP sector. We had two equity offerings for around $300mm total that priced and traded well, and $3.6bn of senior notes. $1.4bn of those notes went to refinance more expensive term debt, insulating balance sheets from interest rate increases. The high yield market appears to have healed substantially from this time last year when energy credit spread blew out to levels not seen since the global financial crisis. The ongoing recovery of the capital markets bodes well for MLPs.
On the M&A front, we got more cooperative play with a new JV between AM and MPLX, and repositioning of assets among WPZ and WES.
Capital Markets
Growth Projects / M&A
Other
Distribution Announcements