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May 5, 2013

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Week Thoughts: MLPs Flat-ish, Cracks Starting to Show

MLPs were flat on average this week on a total return basis, and down slightly on a price basis.  MLPs trailed the broader stock market, which was up 2.1% week over week.  Interest rates were up small, oil was up big, and natural gas was down big on the latest storage report.  NGLs didn’t follow oil higher, and remain at depressed levels relative to oil.  Many MLP analysts believe MLPs as a whole are destined for a serious correction.  With many an ex-date already passed, this week’s relative weakness could be the beginning of such a correction, especially as the follow-on offering machine starts rolling again in the next few weeks.

Weekly Review_5-3-13

The MLP Index still leads the S&P 500, but not by as much as earlier in the year.  GPs are running away at this point, up 2.3% this week and up more than 25% on average.


Winners & Losers
EROC was the big loser this week, after dismal earnings.  Weak earnings were expected, but the results shocked to the downside, with several impossible to forecast items hitting all at once and taking adjusted EBITDA for the first quarter down to $53.6 vs. consensus EBITDA of $70.2mm.  I’ll be out with a research note on them tomorrow to give my updated take.  Upstream MLPs dominated the bottom five this week, with LRE, EVEP and BBEP joining the upstream half of EROC in the bottom five.  Barclays downgraded TCP this week, which helped land it in the bottom five.  On the plus side, refined products MLPs DKL, TLLP and BPL were among the winners.  TLLP makes its second straight appearance in the top 5 this week.  EXLP was up on good earnings and ARLP was bid up after last week’s earnings and ahead of its ex-date (tomorrow).


The 40%+ YTD total return club now has 9 MLP members.  All five of the top five YTD from last week were displaced this week by a new top five, which is extremely rare.  EXLP leads all MLPs in performance at 54.7% year to date.  EVEP is getting dangerously close to claiming the bottom spot.  Other disappointing MLPs this year include OKS and SXE.


That’s all as far as commentary goes for this week.  Busy week upcoming with more earnings reports pending.  I’ll also be a panelist at the Infocast Utica & Marcellus Infrastructure Development Summit in Pittsburgh late in the week.  Find me if you plan to be there as well.
News of the MLP World


Aside from the MLP transactions below, several constituent changes were made to Alerian MLP Indexes (to replace CPNO, which trades no more) that seemed to have varying degrees of impact on the MLPs added: TLLP to the Alerian MLP Infrastructure Index, GMLP to the Alerian MLP Index and Alerian MLP Equal Weighted Index, Crestwood added to the Alerian Natural Gas MLP Index.
Also, a few MLP GPs announced acquisitions this week, including SEMG (RRMS’s GP) buying $300mm of CHK’s midstream assets in the Mississippi (Lou Talarico’s LCT Capital advised SEMG group on the transaction, congrats to him – he’s my office neighbor).  RTK (RNF’s GP) also announced the acquisition of a wood chip processor, Fulghum Fibers.
Finally, Barron’s ran another LINE hit piece in this week’s edition.  LINE has been range bound for the last few months, oscillating between $36 and $39, and earnings were disappointing, but the allegations in the Barron’s piece were much more serious than just missing numbers.  Will be interesting to see if continued financial media onslaughts from Barron’s and Hedgeye will continue to impact LINE’s trading.

  • Emergy Energy Services (EMES) launches initial public offering of 7.5mm common units in variable MLP structure at 14.0% midpoint yield (filing)
    • Variable distribution, private equity-backed oilfield services MLP
  • Northern Tier Energy (NTI) prices upsized public secondary offering of 12.0mm common units at $26.28/unit, raising $362.7mm in gross proceeds to the selling unitholder (press release)
    • Selling unitholders to receive $362.7mm in gross proceeds
    • Transaction upsized from 10.0mm units originally filed

    • One day book-build, unit price rose during marketing period by 0.92%

M&A / Growth Projects

  • Spectra Energy Partners (SEP) announces acquisition of 50% of Express Platte Pipeline System from Spectra Energy Corp for $823mm in total consideration (press release)
    • SEP to acquire 50% interest in Express-Platte Pipeline System for $555mm in cash, $139 in newly issued units and $129mm in assumed debt
    • Expected to close in 3Q 2013
    • Express-Platte system is 1,717 of crude oil pipeline running from Hardisty, Alberta to Wood River, Illinois with capacity of 280,000 barrels/day
    • Full year 2013 EBITDA for SEP’s portion is expected to be $72mm
  • Enterprise Products (EPD) announces expansion of storage capacity at its ECHO and Bertron facilities and expansion of pipelines to directly connect ECHO with major refineries in South Texas
    • EPD plans to expand certain storage and pipeline assets, including adding 4mm barrels of crude oil storage capacity at its ECHO and Bertron facilities and approximately 55 million of 24-inch and 36-inch pipeline to directly connect ECHO with major refineries in the Southeast Texas market
    • Expansion will be completed in phases with final completion expected in 4Q 2014
  • MPLX LP (MPLX) announces acquisition of additional 5% interest in MPLX Pipe Line Holdings from Marathon Petroleum Corp for $100mm
    • MPLX to acquire additional 5% interest in MPLX Pipeline Holdings LP for $100mm (funded with cash on hand)
    • Transaction will increase MPLX’s stake in MPLX Pipeline Holdings to 56%
    • MPLX Pipe Line Holdings owns a 100 percent interest in Marathon Pipe Line LLC (MPL) and Ohio River Pipe Line LLC (ORPL). MPL and ORPL own one of the largest networks of common carrier crude oil and product pipelines in the U.S. based on total volume delivered; a barge dock on the Mississippi River; and crude oil and product storage facilities
    • Acquisition represents a 9.5x multiple of next twelve months EBITDA
  • Enbridge Energy (EEP) announces plans to construct 150mmcf/d processing plant in East Texas for estimated cost of $140mm
    • EEP plans to construct 150mmcf/d processing plant near Beckville in Panola County, TX
    • Expected to cost $140mm and to be in service by early 2015

Corporate Actions

  • Kinder Morgan Energy (KMP) announces closing of merger with Copano Energy (CPNO)
    • CPNO is now a part of KMP and will no longer trade
  • Distribution Announcements:
    • Quarter over quarter increases:
      • APU: $0.84, +5.0%
      • MPLX: $0.2725, +3.8%
      • GMLP: $0.515, +3.0%
      • SEP: $0.50125, +1.3%
      • BPL: $1.05, +1.2%
      • EXLP: $0.5175, +1.0%
      • EVEP: $0.768, +0.1%
    • Flat quarter over quarter:
      • SDLP ($0.3875), BWP ($0.5325), SXE ($0.40), EEP ($0.5435)
    • Variable:
      • ALDW ($1.48), CVRR ($1.58)
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