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January 26, 2013

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Week Thoughts: MLP Upswing Continues, Earnings Incoming

MLPs were up again this week (+0.9%), which makes 4 straight weeks to start the year.  But for the first week this year, the S&P 500 did better (+1.2%) than MLPs.  The MLP Index is up more than 10% for  the year, and will likely finish with the second highest January move ever (2009 at 14.0% was the best January ever).  Cold weather seems to be having an impact on recent propane and natural gas price action, but commodities were mixed this week. One data point worth noting is the 10 year treasury rate, which reached its highest point since May 1st of last year.   That rate won’t have a huge impact on MLP prices until it floats or spikes another 50-100 basis points, but it will become a discussion point in the MLP community as soon as we break 2%.
Weekly Review_1-25-13
MLPs are way out in front YTD on stronger commodity prices and what appears to be rotation into the sector after MLPs under-performed other equities last year.  In general, MLPs are also benefiting from a benign broader market that saw the S&P 500 break through 1,500 points this week, edging closer to its all-time high close of 1,565.15.  And this is in the midst a bitter public feud between two hedge fund heavyweights with apparently nothing better to do on a Friday, and despite concerns that Apple may become the next Microsoft.
Commentators and traders are looking to this Friday’s payroll report as the next potential market catalyst to push us higher or lower from here.  In the MLP space, distribution announcements have been very solid thus far, but we’ll be looking at earnings reports the next few weeks for info on coverage ratios, 2013 guidance, and project updates to either confirm or call into question current valuations.
At my day job, we are on track to launch MLP equity research coverage either this week or next, I will be out with more details on that next week, but the gist is that we will launch coverage on 5 MLPs, expand to 15 or so in the coming months, and go from there.  We will offer that research to anyone who is willing to share their contact information and be contacted by our sales and trading team.
Also, Guzman & Company announced yesterday the launch of a new company, Guzman Financial Engineers (by financial engineers we mean the good kind).  GFE is a full-service energy risk management consulting firm, which will leverage the knowledge base and technical skills of Dr. Ehudd Ronn, a UT professor and energy risk expert.  I encourage you to check out the website for the firm here
GFA Logo
Finally, I was scheduled to speak on a panel at the Hart Energy Marcellus-Utica Midstream Conference this week in Pittsburgh, but a family medical emergency involving the big C will keep me in Texas this week.  The conference should be very interesting though, and if you have the means and the time, you should check it out.


My efforts to get equity research launched and that cancer situation account for the shorter and more infrequent posting of late, but in the long run will result in regular readers of the blog with more in-depth coverage of specific MLPs.
Winners & Losers
GSJK was the big winner this week after announcing a 5.7% quarterly distribution increase.  GLP and SMLP also had unexpectedly high distribution increases, helping to drive their strong weeks.  On the downside, BPL was weak on its equity offering.
None of the top four performing MLPs for the year so far are included in the Alerian MLP Index.  In fact of the ten MLPs listed below only 2, NRP and PVR are included in the MLP Index.  That’s what you’d expect, given that the MLP Index is meant to include the top 50 largest MLPs, and those 50 are larger and typically have a lower sector beta than the ones outside the index.  Of the top 5 MLPs, only one (GLP) has announced a distribution increase this quarter.  At the margins of the sector, you see price fluctuations that are a result of volatile trading in one direction or the other, or recovery from volatile trading previously, which is what we’re seeing in the drastic recovery from AMID, OXF (last year’s worst performing MLP)., and HCLP.  Not much to talk about on the downside, the two most recent IPOs (USAC and SXCP) have lagged so far.
News of the (MLP) World
Quiet week for M&A and capital markets, but we did get 42 distribution announcements and an unexpected CFO change.

  • Buckeye (BPL) prices public offering of 6.0mm common units at $52.54, raising $315.2mm in gross proceeds (press release)
  • Energy Transfer (ETP) files equity distribution agreement to raise up to $200mm in common equity at-the-market (filing)

M&A / Growth Projects

  • Kinder Morgan Energy (KMP) announces Phase 2 of Edmonton crude oil terminal expansion, expected to cost approximately $112mm and be in services in late 2014 (press release)

Corporate Actions

  • Crestwood Midstream (CMLP) announces CFO Bill Manias resigned, interim CFO to be William Dougherty (filing)


  • Increases (quarter over quarter):
    • ARP: $0.48, +11.6%
    • ATLS: $0.30, +11.1%
    • GLP: $0.57, +7.0%
    • GSJK: $0.42, +5.7%
    • GMLP: $0.50, +5.3%
    • SXL: $0.545, +5.3%
    • WES: $0.52, +4.0%
    • OILT: $0.39, +4.0%
    • TLLP: $0.4725, +3.8%
    • ACMP: $0.45, +3.4%
    • MMP: $0.50, +3.1%
    • NGL: $0.4625, +2.8%
    • SPH: $0.875, +2.6%
    • RRMS: $0.4025, +2.5%
    • WPZ: $0.8275, +2.5%
    • SMLP: $0.41, +2.5%
    • BKEP: $0.115, +2.2%
    • APL: $0.58, +1.8%
    • HEP: $0.47, +1.6%
    • NRGM: $0.39, +1.3%
    • MWE: $0.82, +1.2%
    • LGCY: $0.57, +0.9%
  • Other:
    • UAN: $0.192, which was a 61% decline quarter over quarter.  Lots of discussion about what happens when a variable MLP drops its distribution significantly.  UAN had consistently communicated the expected lower distribution that resulted their schedule plant turnaround.  UAN did drop 1.9% on Friday, but was up week over week.  At least in this example, a one-off distribution drop appears to be manageable if the fundamentals of the sector remain intact.
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