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March 22, 2015

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Week Thoughts: MLP Spring Breakup

MLPs stopped issuing equity, the Dollar faltered, oil and gas prices bounced, interest rates collapsed, the heavens parted…and that’s all it took for MLPs to finally trade up this week.  The Alerian MLP Index rose 1.7%, well ahead of the Alerian MLP Equal Weight version, indicating strength in larger MLPs, something we haven’t seen much of this year. MLPs trailed the S&P 500 (+2.7%) and Utilities (+3.8%), but green is green, so no complaints.
Weekly Review_3-20-15
Oil prices have bounced off their fresh lows hit on Tuesday, helped by broader macro factors that held back the Dollar this week.  Oil inventories had another large build this week, so the oil price bounce still feels shaky.
Deal Break
After 5 equity offerings last week, there was not a single offering this week, and very little deal-making to speak of this week.  And why would there be deals?  Every school in the greater Houston area, it seems, was on Spring Break this week.  Public schools in Memorial (Spring Branch ISD), West University (HISD), the Woodlands, plus private schools St. John’s, Kincaid and Episcopal were all off.  Many MLPs are based in Houston, but a greater percentage of the bankers and lawyers that service them are located there.  I expect they’ll get back to the work of deal making and accessing capital markets next week.
Spring Break
I was in Calgary this week (not for Spring Break).  I heard a few times about a slightly different break in the spring, called spring breakup.  Particular to Canada, spring breakup happens each year when roads are soft from frost melting and heavy equipment can’t travel on those roads, leading to less production activity for a month or so.
Maybe this week’s positive MLP price action represents some kind of thawing of the frost surrounding MLPs. Or maybe it’s just a pause on a path lower for MLPs, because risk-on forces were too soft to let anything heavy weigh on MLPs this week.
Winners & Losers
Marine MLPs led the way this week, with TOO and GMLP having strong weeks.  TOO’s performance was the result of first oil on the Knarr development and TK’s floating production storage and offloading connected to it.  TOO is expected to buy the FPSO from TK at some point in the first half of 2015.  In the oil beta category, DPM showed signs of life, while HCLP traded up with commodity prices.
Even in a positive week, there was a wide range of returns this week.  Oil’s bounce didn’t help the 3 upstream MLPs that made the bottom five this week, 2 of which were repeats from the bottom 5 last week.
The top 5 year to date continues to be dominated by small-cap, non MLP Index names.  The bottom 5 continues to be dominated by commodity exposed MLPs, like EVEP, ARP and ARLP, as you would expect.
TOO climbed out of the bottom 5 with its big week.  MMLP climbed back near the top of the sector.  CPLP broke into the top 5, presumably on the news that it will be joining the Alerian MLP Index.
News of the (MLP) World

  • Black Stone Minerals, L.P. (BSM) files initial registration statement for an MLP IPO to raise up to $100mm in gross proceeds (filing)
    • BSM is one of the largest owners of oil & natural gas mineral interests in the U.S.
    • BSM owns mineral interests in approximately 14.5mm acres, with an average 48.1% ownership interest in that acreage
    • No IDRs

M&A / Growth Projects

  • Magellan Midstream (MMP) announced that Anadarko Petroleum (APC) has exercised its option to acquire 20% of the Saddlehorn pipeline project (press release)
    • The project will be owned 20% by APC, 40% by MMP and 40% by PAA
    • Saddlehorn is a 550-mile pipeline project that will transport oil from the DJ Basin to storage facilities in Cushing, OK expected to cost $800-850mm to construct
    • APC is the parent of Western Gas Partners (WES)
  • Howard Energy Partners, private midstream company partially owned by EnLink Midstream (31%) and Alinda Capital (59%), announced $500mm acquisition from Southwestern Energy (press release)
    • Howard will acquire natural gas gathering assets in northeast Pennsylvania, including 100 miles of gathering pipeline with 600 mmcf/d of capacity and 53,000 horsepower of compression
    • Howard plans to construct a new natural gas gathering system in Tioga County, PA that will add up to 380 mmcf/d of capacity
  • Williams Partners (WPZ) received FERC approval for one project (press release), announced FERC application for another (press release)
  • Buckeye (BPL) announced open season for Cross Town Pipeline (press release)
  • Foresight Energy (FELP) announced that Murray Energy Corporation will acquire a controlling stake in FELP’s general partner (press release)
    • Murray will pay $1.4bn to acquire (1) an 80% interest in FELP’s GP, with 77.5% interest in the IDRs, (2) approximately 50% of the L.P. interest in FELP, and (3) access to other coal handling, transportation and transloading facilities
    • Murray has 12 coal mines and $713mm of 2014 EBITDA, some of which may be dropped down over time to FELP
    • Founder of FELP will retain 22.5% of FELP’s GP and 35% interest in FELP directly
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