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November 24, 2012

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Week Thoughts: MLPs Go Back for Seconds

MLPs bounced this week 3.2%, riding the rising broad market through another big week of equity deals (around $450mm in primary issuance)  and equity filings (2 S-1’s for MLPs that have been public less than a year, one mixed shelf filing).  After MLP post election fear peaked on 11/15, the Alerian MLP Index is up 6.6%, including the 3.3% pop on 11/16.  Oil and natural gas drifted higher, with natural gas inching ever closer to the magic $4.00 number.

If the market and commodity prices continue to float higher, expect MLP IPOs and equity deals to keep coming the last 5 weeks of the year.  It will be the classic push and pull between demand for MLP units and equity supply.  Expect MLPs to overcome the equity supply much like we saw last December when MLPs issued more than $1.9bn in equity, including 4 IPOs, and the MLP Index rose 5.8%.
And down the stretch they come…just 5 more weeks of trading left in 2012.  Just 5 more weeks to sell all that stuff you own that might carry a higher capital gains tax in January vs. right now.  5 more weeks to get your MLP paper to market if you’re an MLP, and 5 more weeks to try to figure out who will be the big winners in 2013.

Winners & Losers

Winners this week included two coal MLPs that were hit hard the last two weeks (RNO and OXF).  Seadrill Partners (SDLP) bounced 11% this week, and is now up 20%+ since its IPO in October.  Vanguard was up as well as the market clearly likes its latest acquisition announced 11/15.
HCLP was the biggest loser for the second straight week, and is down more than 25% in the last two weeks.  ARP’s equity deal pushed its unit price down 5.6%, fairly typical reaction for an MLP with such a small float.   MEMP was down on its S-1 filing despite a 2.5% announced distribution increase.  MEMP couldn’t wait another 6 weeks or so to becomes S-3 eligible, but that’s what happens when you make 5 acquisitions in your first year as a public MLP.

No changes to the members and positions of the top 5 MLPs year to date.  In the bottom 5, ARLP dropped down to replace RNO, and CMLP dropped two spots from 4th worst performer this year to 2nd worst.

When looking at MLPs compared with other assets and asset classes, MLPs still trail the broad stock market and gold prices for the year.  That’s not going to change in the last 5 weeks of trading this year.  MLP GPs are pulling away, but still very far behind variable distribution MLPs, in their 2012 coming out party.

Hope everyone had a nice Thanksgiving.  It turns out my wife doesn’t like turkey and 2 out of my 3 kids don’t either (at least not with a bunch of Ketchup).  That means I will be fighting through a turkey coma for the next week at least as I chip away at the mountains of Turkey we ordered from a very disorganized Whole Foods.  Also, no one in my house likes pumpkin pie either, which makes it much more difficult to delude myself into thinking I didn’t eat most of that pie.  If the pie is gone, only one person to blame (or shame).

Takes me back to my analyst days and the eating contest I participated in to see if one of us could eat one of everything in the vending machine.  Other analysts got their spreadsheets going to tally up exactly how many calories and gum-burning sodium each of us was attempting to consume.  It was much harder to try to calculate the calorie leakage after multiple vomits, though.  If anyone out there has the pictures from that event, please send them my way, so I can share with my children someday the important work I was doing as an energy banker right out of college.

News of the (MLP) World


  • Northern Tier Energy (NTI) filed S-1 for $250mm of units owned by GP (100% secondary)
  • Martin Midstream (MMLP) priced public offering of 3.0mm common units at $31.16/unit, raising $98.5mm in gross proceeds
  • Atlas Resource (ARP) priced public offering of 7.6mm common units at $23.01, raising $174.9mm in gross proceeds
  • NGL Energy (NGL) filed S-3 to raise up to $1.0bn in a combination of equity and debt securities
  • Memorial Production (MEMP) filed S-1 for public offering of up to $205mm of common units
  • Alon USA (ALDW) priced initial public offering of 10.0 common units at $16.00, raising $160.0mm in gross proceeds
    • ALDW priced below its price range ($19.00 to $21.00), opened at $17.00 and closed its first day of trading at $18.40, up 15.0% from its IPO price
    • ALDW is a variable distribution MLP, with a projection in its S-1 to distribute $5.20/unit in the next 12 months, resulting in a 32.5% indicative yield at IPO, the largest MLP IPO yield ever
    • Another big first day for an MLP IPO, that makes 6 MLP IPOs in 2012 that have popped more than 10% on their first day, a new record for a single year
  • DCP Midstream (DPM) priced $500mm of 2.50% senior notes due 2017 at 99.379%, for YTM of 2.516%
  • Legacy Reserves (LGCY) priced $300mm of 8.00% senior notes due 2020 at 97.848%, for YTM of 8.176%

M&A / Growth Projects

  • Breitburn Energy (BBEP) announced acquisition of oil properties in Kern County, California for $40mm in cash and 3.0mm common units
    • Assets located in the Belridge Field in Kern County, are 100% operated with 100% working interest
    • Expected to be immediately accretive to distributable cash flow / unit
    • Estimated average daily net production of approximately 825 boe/day as of October 2012 (85% oil)
    • Proved reserves of approximately 3.8mmboe as of 11/1/12, R/P ratio of more than 12 years
  • Memorial Production (MEMP) announced acquisition of oil and natural gas properties offshore Southern California for $271mm
    • Purchased from Rise Energy Partners, LP, transaction expected to close in December 2012
    • Acquired with borrowings on its credit facility and promissory notes payable to the seller
    • Asset details:
      • 51.75% working interest in 3 Pacific Outer Continental Shelf blocks covering the Beta Field
      • Reserves of approximately 14.3mmbls, 100% oil and 70% proved developed reserves
      • Current net production of 1,574 bbls/d
      • Reserve to production ratio of approximately 24.9 years, approximately 5% decline rate
      • Associated facilities include 3 conventional wellhead and production processing platforms, a 17.5-mile pipeline and an offshore tankage and metering facility
    • MEMP also announced a 2.5% distribution increase for its 4th quarter distribution (payable in 1Q 2013)
  • Atlas Resource (ARP) announced acquisition of 35 mmboe of proved oil and gas reserves in the Fort Worth Basin for $255mm
    • Properties owned by DTE Gas Resources, LLC, which is being sold by DTE Energy Company to ARP in this transaction
    • ARP to fund the acquisition with borrowings on its credit facility
    • Asset details:
      • 35 mmboe of proved reserves (24% oil, 33% NGLs, 43% natural gas)
      • 261 gross producing wells in the Barnett Shale and Marble Falls on approximately 88,000 net acres
      • 100% operated, 99% working interest, 79% net royalty interest
      • 700 identified undeveloped vertical drilling locations in the Marble Falls play
      • 2013 full year average net production expected to be approximately 4,000 boe/d
  • Global (GLP) announced long-term lease agreement with Getty Realty Corp to supply gasoline to and to operate 90 of Getty’s gas station sites in and around New York, NY

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