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March 14, 2015

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Week Thoughts: MLPs Drowning in Oil & Equity

MLPs sold off sharply this week, trading down 4 out of the 5 days.  The Alerian MLP Index (AMZ) closed down 4.3% for the week, and is down 8.1% over the last 3 weeks.  Lower oil prices were the primary driver of the sell off this week, and despite a much lower inventory build this week, oil storage building is the primary concern within the sector right now.
Weekly MLP Review_3-13-15
Piling on top of those fundamental issues were 5 equity offerings for nearly $2bn worth of new MLP paper that was not easily absorbed this week.  There is not much to get excited about after the last three weeks, although there probably won’t be 5 equity offerings next week, so there is that.  With earnings season in the rearview mirror, expect commodity prices to dominate price action in the near-term, with M&A as the only potential slump-buster for now.
Drowning Oil
The S&P 500 declined -0.9%, while utilities outperformed (+0.3%) on lower interest rates week over week.  Oil price declined 9.2% in the spot market week over week, making it 4 straight negative weeks for oil prices.  A strong dollar and seasonally weak refinery demand leading to inventory builds have the biggest contributors to negative sentiment.  Natural gas prices reversed gains from last week, down 6.6% in the spot market.
Since oil prices climbed above $50/bbl a few weeks ago, there has been a rush to raise capital across the energy sector (beyond just MLPs).  Total equity raised by U.S. energy companies so far this year has been more than $10.0bn already ($6.3bn from E&P corporations, $3.7bn by MLPs).  That new supply of equity, combined with lower commodity prices has sent MLPs lower.
Winners & Losers
No trends on the upside this week, except that each of the top 5 did not issue equity this week.  FISH led all MLPs On the downside, commodity price sensitivity was the prevailing theme.  All 5 were upstream focused MLPs, 4 E&P and 1 oilfield services.
There was no real consistency week over week, as shown below.  BBEP went from top 5 to bottom 5, but no other recurring names.
Year to date MLPs have declined 7.7%, but there are a few that have escaped the vortex of falling oil prices.  None of the top five MLPs are in the Alerian MLP Index, and they are generally more thinly traded than other MLPs, which I think helped push a few of them lower than most MLPs in 4Q 2014, so when things first stabilized back in mid-January, they bounced hard.  Upstream MLPs bounced hard in January as well on oil price optimism, but have collapsed with oil the last few weeks, such that several of them are now among the bottom 5.  4 of the bottom 5 are in the Alerian MLP Index (for now).
Recent volatility is highlighted in the below chart that shows week over week changes in the YTD winners and losers.  EVEP and TOO remain at the bottom, but SDLP and ARP dropped in the bottom five this week.  On the positive side, CLMT and MEMP dropped out of the top 5, FISH and CELP jumped into the top 5, while MMLP went from first overall down to fifth.
News of the (MLP) World
In a continuing theme over the last few weeks, MLPs are rushing to get equity deals done while they can, as the general consensus is that oil prices will be lower in the near-term, given storage builds.  There were 5 equity offerings by MLPs for total gross proceeds of more than $1.9bn, bringing the total equity issued by MLPs through public offerings to $3.9bn in the last month.
Only one of the five offerings this week was accompanied by an acquisition announcement, proceeds from the remainder of the offerings will be used to fund previously announced 2015 capital expenditures related to development projects, which made after-market trading pretty sloppy.

  • EQT Midstream (EQM) priced public offering of 8.25mm common units at $76.00/unit, raising $627.0mm in gross proceeds (press release)
    • One day marketed offering, with a file-to-price decline of 5.54%
    • Proceeds to be used to partially fund drop-down acquisition announced this week
  • Sunoco Logistics (SXL) priced public offering of 13.5mm at $41.76/unit, raising $563.8mm in gross proceeds (press release)
    • Overnight offering, priced at 3.24% discount to prior closing price
    • SXL traded down another 4.0% from pricing in the next session
  • Calumet Specialty Products (CLMT) priced public offering of 6.0mm units at $26.75/unit, raising $160.5mm in gross proceeds (press release)
    • Overnight offering, priced at 3.9% discount to prior closing price
  • Enbridge Energy Partners (EEP) priced public offering of 8.0mm common units at $36.70/unit, raising $293.6mm in gross proceeds (press release)
    • Overnight offering, priced at 3.2% discount to prior closing price
  • Targa Resources Corp (TRGP) priced public offering of 3.25mm shares at $91.00/share, raising $295.8mm in gross proceeds (press release)
    • Overnight offering, priced at 3.6% discount to prior closing price
    • Traded up 0.2% from pricing on a negative day for MLPs
  • Western Gas Partners (WES) filed updated equity distribution agreement to sell up to $500mm of equity at-the-market (filing)


  • Crestwood Midstream (CMLP) priced $700mm of 6.25% senior notes due 2023 (press release)
    • CMLP will use the proceeds to redeem all outstanding 7.75% senior notes due 2019 and to pay down borrowings outstanding on its revolving credit facility

M&A / Growth Projects

  • EQT Midstream (EQM) announced a $1.05bn acquisition of natural gas gathering pipeline assets from its sponsor EQT Corp (press release)
    • EQM is acquiring the Northern West Virginia Marcellus Gathering System, which gathers natural gas production in the Marcellus Shale, and a 30-mile natural gas pipeline that connects the gathering system to a major processing hub
    • As part of the transaction, EQM entered into a 10-year contract with EQT that eliminates volume and commodity price exposure


  • Alerian announced quarterly rebalancing (press release), removing 3 upstream MLPs from the Alerian MLP Index, and adding the following MLPs:
    • Summit Midstream Partners (SMLP)
    • Capital Products Partners (CPLP)
    • Sunoco LP (SUN)
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