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November 17, 2012

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Week Thoughts: MLPs Coil, Coil Some More...Then Spring

Most of the time, MLPs get batted around by price movements outside of themselves, such as price action in the broader energy sector, the stock market, commodity prices, Europe, etc.  But this week, MLPs drove the bus, and the price action of the sector attracted attention from the financial media.  Also, traffic to my website from search terms like “why are MLPs going down” spiked.  I was even quoted by both the and Barrons Online by different reporters.

I would like to think that at some point all of the re-assuring research analyst notes, Seeking Alpha articles, CNBC guests, and even blog posts like mine served as fissures in the dam of fear around MLP fund flows.  But I don’t know.  Whatever the reason, around 11:45 Friday, the dam broke and buyers flooded MLPs.

By the time the market closed, the Index was up 3.3% on the day, and the MLP Index, which looked like a lock yesterday to finish down 5%+ for the week, finished the week down just 2.3%, which was less than last week’s 2.6% drop.  So, all of that talk about 5% weeks I wrote about yesterday is no longer relevant, which is fine with me.
+3% days like Friday are very rare, occurring on just 29 of the 4,252 trading days since the beginning of 1996, just 0.66% of the time.  In fact, since April 2009, there have been only 2 days with more than 3% returns on the Alerian MLP Index: May 10, 2010 (+3.3) and August 9, 2011 (+8.4%).  So, for whatever the reason, a 3% Friday is worth celebrating, especially because the trading pattern of the last few weeks is much more akin to the swoons in May 2010 and August 2011 than late 2008.  MLPs are still a long way from their highs for the year, but MLP investors are happier today than they were yesterday.
Quietly amidst all of the MLP noise, natural gas futures rose 8.3% to end the week at $3.79, just 5.5% away from $4.00, which is quite a reversal from below $2.00 earlier this year.  Oil was higher on escalating hostilities in the Middle East.  Pretty much everything else was down this week.

Winners & Losers

HCLP was cut down on news of a lost contract just 3 months after its IPO, it didn’t just dip below its IPO price, it plummeted.  That’s too bad, and will likely add some headwinds to future hopeful MLPs with oilfield services assets.  Targa was down sharply this week after issuing equity at the bottom of our two week MLP slide.  Other bright spots for the week were small caps like NKA, which dropped big last week.

For the year, the 3 worst MLPs to have owned at the beginning of the year are all coal MLPs.  NS returned to the bottom 5 this week after a 4.5% decline week over week.  NKA’s big week propelled it back into the top five.

I think I’ve reached my word limit for the week.  News wrap below, but that will be all for me for the next several days.

News of the (MLP) World


  • Targa Resources (NGLS) prices public offering of 9.5mm common units at $36.00/unit, raising $342.0mm in gross proceeds
    • Total gross proceeds of $342mm
    • One day book build, with file to price decline of 7.7%
    • We are seeing more marketed follow ons that have a one day book build as opposed to overnight offerings, presumably because overnights wouldn’t work in this market, or because underwriters are trying to use that time to attract more institutional investors
  • Spectra Energy (SEP) prices public offering of 4.75mm common units at $27.60/unit, raising $131.1mm in gross proceeds
    • Gross proceeds of $131mm
    • Overnight deal, priced at 3.5% discount to prior close
  • Markwest Energy (MWE) prices public offering of 8.5mm common units at $46.50/unit, raising $395.3mm in gross proceeds
    • Gross proceeds of $395mm
    • One day book build, file to price decline of 6.4%
  • ONEOK Partners (OKS) files equity distribution agreement to sell up to $300mm in common units at the market


  • Mid-Con Energy (MCEP) announces increase in its borrowing base from $100mm to $130mm on its existing $250mm senior secured credit facility

M&A / Growth Projects

  • Targa Resources (NGLS) announces $950mm acquisition of Williston Basin crude oil pipeline & terminal system and natural gas gathering & process assets from Saddle Butte Pipeline, LLC
    • Transaction expected to close in 4Q 2012, to be funded with a combination of debt and equity
    • NGLS anticipates the acquisition will add 10% to 15% of additional EBITDA to its current 2013 guidance
    • Acquisition expected to be accretive to distributable cash flow per unit beginning in 2014
    • NGLS expects the assets will require $250mm in growth capex in 2013 to support necessary expansions
    • Assets include:
      • 155 miles of crude oil pipelines
      • Combined crude storage capacity of 70,000 barrels
      • 95 miles of natural gas gathering pipelines
      • A 20 mmcf/d natural gas processing plant
  • Vanguard Natural Resources (VNR) announces acquisition of non-operated oil and natural gas assets in Montana for $131.0mm
    • Acquisition expected to close by 12/31/12, to be funded with borrowings under its existing reserve-based credit facility
    • Properties are in the Bakken trend, and are characterized by mature oil production with some associated natural gas production
    • Acquisition will be immediately accretive to cash flow and have current net production of approximately 1,100 BOE/day
  • Kinder Morgan Energy (KMP) announces 25-year transportation agreement to support development of $200mm pipeline to serve customers in Mexico with pipeline from Tucson, AZ to the U.S. – Mexico border

Corporate Actions

  • Vanguard Natural Resources (VNR) announced monthly distribution of $0.2025 / unit, an increase of 1.25% month over month
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