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April 20, 2014

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Week Thoughts: MLPs Draft the Market, Keep Running

The MLP Index closed the short week at a fresh all-time, up 1.3% since last Friday’s all-time high.  MLPs have been up for 4 straight weeks now.  The equal-weight MLP Index was up more (1.8%), which indicates the rise was broad-based and that smaller cap MLPs outperformed.
Stocks rebounded sharply from last week’s sell-off, and the S&P 500 is now positive for the year.  Also, for the second straight week energy commodities were higher across the board.  The euphoric combination in the stock and commodity markets was enough to help push MLPs higher despite the US 10 Yr being 10 basis points higher week over week.  Utilities were higher this week as well.  In fact, besides US treasuries, it seems that everything was up.

Weekly MLP Review_4-17-14

The MLP Index is now up 3.7% on a total return basis so far in April, on track for a 10th straight positive April, and possibly setting up for a 5th straight negative May.  A positive earnings season and an uptick in strategic M&A activity (which is way down compared with 2013) might help break the cycle.
Did You Know?
Easter is an unusual holiday in that it moves around pretty wildly from year to year.  Easter Sunday 2013 was March 31.  This year it falls on 4-20.  Patriots’ Day, observed as a state holiday in Massachusetts, Maine and (oddly) Wisconsin, falls on the third Monday of April every year.  This year, that’s April 21st, which is the latest possible date in a year that the holiday can fall.  Last year (when the day and the Boston Marathon that falls on that day were ruined by two backpack/rice cooker bombs) it fell on April 15, the earliest possible date in a year that the holiday can fall.
While trading results historically have not trended either positively or negatively for MLPs on the week after Easter Sunday, did you know there is an ongoing streak for the week of Patriots’ Day?  For 9 straight years (correlating with the current 9-year April winning streak discussed here a few weeks ago), the Alerian MLP Index has traded up the week of Patriots’ Day.  While interesting, you can go ahead and file that inconsequential fact alongside others found here before.


Whether or not MLPs pull out in front of the pack this week, or spend another week drafting the crowd, it will be good to see Boston out in full force to support this year’s marathon runners and pay tribute to last year’s tragedy.

Winners & Losers

Often when I look at the best performing MLPs in a given week, it’s hard to discern a theme.  This week’s winners included 2 natural gas pipeline MLPs and 3 refined products drop-down MLPs.  BWP got an analyst upgrade that seemed to confirm its rally the last few weeks.  The other natural gas pipeline MLP in the top 5, SEP, may have been up in sympathy with BWP and on EPB and KMP natural gas pipeline volumes strength reported.  The refined products drop down MLPs in the top 5 (VLP, MPLX and PSXP) have seemingly been up continuously since their respective IPOs, but this week these high flyers were up sharply in unison on no news.  It may have just been a case of a growth-on week, and these are some of the growthiest MLPs out there.

On the negative side of the ledger, there were no discernable trends and none of the bottom 5 had any news.  GSJK has been one of the best performing MLPs year to date, so its pause this week is probably the case of some profit taking in a highly illiquid name.



Year to date winners and losers are shown below.  BWP’s 28.4% rally from its March 13th bottom still leaves it 2000 basis points behind the next worst MLP so far in 2014.  EPB and LGCY moved out of the bottom 5, replaced by SPH and APL.  On the positive side, PSXP reclaimed the top spot, and EQM (another natural gas MLP performing well) rejoined the top 5, displacing RNO. The broad-based April rally we’re in the middle of has narrowed the range between the highest and lowest performing MLPs, which is good for the MLP sector generally.



News of the (MLP) World

Kinder Morgan’s complicated complex (which could be the title of a children’s book..) reported 1Q results that were generally positive.  KMP’s organic growth project backlog grew to $14.9bn from $13.5bn quarter over quarter.  KMP distribution coverage came in at 1.1x in what is seasonally a strong quarter for KMP results.  Natural gas pipelines segment benefitted from a cold winter that drove volumes higher.
Rich Kinder kicked off the conference call by highlighting a Wood Mackenzie report that calls for growth in natural gas demand of 23 bcf/d in the next 10 years.  Kinder concluded that the 23 bcf/d estimate understated the potential demand from all sources, including: LNG exports, additional natural gas electric generation, and increase in industrial use, and exports to Mexico.  He also referenced several other third party reports that estimated large capex requirements to manage natural gas production growth.  It was a different and much less combative opening monologue on the conference call than last call, focusing on the macro opportunities for natural gas rather than KMI/KMP stock prices (transcript).
Earnings season starts to ramp up this week, with NS and EQM reporting, followed by a steady flow of earnings releases (and distribution announcements) until the second week of May.

It was pretty quiet on the transaction front this week, with no equity, one debt deal and no meaningful acquisitions.


No deals.


  • Plains All American prices offering of $700mm of 4.70% senior notes due 2044 at 99.734% (filing)

M&A / Growth Projects

  • Kinder Morgan Energy (KMP) announces successful open season for the proposed Broad Run Flexibility and Broad Run Expansion Projects on its Tennessee Gas Pipeline Company (TGP) (press release)
    • KMP awards 100% of the 790 dekatherms/day capacity across the two projects to Antero Resources under a 15 year contracts
    • Anticipated capital cost of the projects: $782mm
    • Project will provide outlets for natural gas sourced from the Utica and Marcellus Shales
  • Western Refining, parent of Western Refining Logistics (WNRL) announces plans to construct new 40-mile pipeline in the Delaware Basin (press release)
    • Pipeline will originate from WNRL’s existing Mason Station crude oil gathering facility in Reeves County and will terminate at a new crude gathering facility at Wink Station in Winkler County, TX
    • Pipeline will be capable of transporting 125,000 barrels/day of light crude oil and condensate for delivery to common carrier pipelines at Wink, TX
    • Expected to be in-service by 2015


  • Genesis Energy (GEL) announces resignation of President and COO Steve Nathanson, effective April 30th (press release)
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