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August 28, 2016

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Week Thoughts: MLPs Fall in the Woods

MLPs dropped this week, after a few weeks of treading water.  The index is on pace to finish August negative, skewed by EPD (20% of the index) having a very bad month (-6.6% so far).  In any event, MLPs were due for a pause after 5 straight positive months.
Given we’re in the middle of two of the sleepiest market weeks of the year, seeing MLPs down in a risk-off week when utilities, other yield-based equities and oil are all down, I’m not terribly concerned with the MLP Index having its worst week since late March.

  • If a tree falls in the woods, does it make a sound?
  • If MLPs fall in a week where most market participants aren’t participating, does it matter?

Oil rallied Tuesday on OPEC member jawboning, then fell Wednesday on inventory build, but recovered Thursday and Friday to finish down 2.5%.  Natural gas rocketed higher, helped by a strong inventory report.  Oil and natural gas prices even powered through the Jackson Hole buzzkill that weighed risk assets generally.
Winners & Losers
Most of the top 5 this week are beneficiaries of higher natural gas prices, including CNNX, ARLP (coal demand grows with gas prices), RMP and TLLP (through the QEPM assets).  CAPL also made the top 5 on the merger of its parent with a larger convenience store operator.  On the downside, not much of a theme, although TOO and CPLP were both in the top 5 last week.
Year to Date Leaderboard
CNNX was the only top 5 from last week that went up this week.  In doing so, it regained the top spot for the year overall.  PSXP and VLP escaped the bottom 5 on reaction to their M&A action.
General Partner Holding Companies
GP performance was inline with MLP performance this week, with natural gas-levered GPs taking the lead, although some natural gas and NGL focused GPs like SE and OKE were laggards.
News of the (MLP) World
It was a surprisingly active week for MLP transactions.  Resolution of the CAPL GP sale situation, plus further details on expected transactions like WMB’s DRIP, VLP’s drop-down and Howard Energy’s new investor.  Also, the Dakota Access Pipeline became the protest du jour in the ongoing saga for midstream companies to build the pipes their customers need and that have been approved.

  • Williams Companies (WMB) announced purchase of 6.975mm units at $35.84/unit ($250mm) from Williams Partners (WPZ) as part of previously announced DRIP program (press release)
    • Purchase price based on 5 day average price, less a 2.5% discount
  • Alberta Investment Management Corp (AIMCO) announced $500mm investment in private midstream company Howard Energy Partners (press release)
    • EnLink Midstream (ENLK) owns 31% stake in Howard, and this investment by AIMCO will allow ENLK to reduce its 2016 growth capital by as much as $100mm
  • NGL Energy (NGL) files equity distribution agreement to sell up to $200mm of common units at-the-market (filing)
  • Valero Energy Partners (VLP) filed S-3 registration statement to register for sale up to $350mm worth of common units (filing)
  • Green Plains Partners (GPP) filed S-3 registration statement to register for sale $500mm worth of equity and debt securities as well as 13.5mm units ($250mm worth) owned by sponsor Green Plains Inc. (filing)

M&A / Growth

  • Phillips 66 Partners (PSXP) announced acquisition of Louisiana NGL logistics assets from Chevron for an undisclosed purchase price (press release)
    • PSXP expects the assets to generate $25mm in EBITDA in 2017
    • Assets include 500 miles of pipelines and an NGL storage cavern in South Louisiana
  • Valero Energy Partners (VLP) announced acquisition of terminal assets from Valero Energy (VLO) for $325mm (press release)
    • VLP will acquire terminals that support VLO’s Meraux and Three Rivers refineries
    • 3x implied EBITDA multiple based on annual EBITDA of $39mm
    • Funded with revolver borrowings and units issued to VLO
    • Acquired assets backed by new 10-year contract with VLO with minimum volume commitments covering 85% of throughput
  • CST Brands, owner of the general partner of CrossAmerica Partners (CAPL) announced merger with Alimentation Couche-Tard Inc. (press release)
    • The merger implies an equity value for CST of $3.8bn, or $4.4bn enterprise value including debt
    • Alimentation Couche-Tard is a Canadian company that owns Circle K
    • At this point, Couche-Tard has not outlined a plan for what it might do with its newly-controlled MLP or the associated GP and LP interest


  • The battle for control of the board of WMB continues, with the spat taking a more public turn as activist Corvex laid out a plan to fill the board with placeholders and then find board members they feel would be better than those WMB would find
    • WMB commented on the Corvex plan (press release)
    • WMB confirmed receipt of the Corvex nominees (press release)
    • Annual meeting is scheduled for November 23rd
  • The Dakota Access Pipeline project, despite already receiving permits and in the midst of construction, has had to halt construction in a certain region where protestors have mounted an aggressive campaign to seek an injunction (NY Times on protests)
    • A judge will provide a ruling on the issue on September 9, as discussed in this article (the Guardian)
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