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April 20, 2013

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Week Thoughts: MLPs Keep Running

Keep Running

MLPs were mixed this week, but the MLP Index inched slightly higher, following last week’s +1.9% gain.  It was the worst week of the year so far for the S&P 500, which makes the MLP outperformance more meaningful.   Commodity trends continued from last week. Gold, which was down 6.0% last week, was down another 6.0% this week.  Oil, which was down 2.2% last week, was down 3.2% this week.  Natural gas, which was up 2.5% last week, was up another 3.8% this week.

Weekly Review_4-19-13

KMP reported solid earnings as usual.  Segment by segment, the refined products segment better than consensus expectations, driven by growth in biofuels volume.  Natural gas pipeline segment was better than expected, driven by volume growth from its Eagle Ford footprint.  CO2 and terminals segments were weaker than expected, but each segment had non-recurring issues to deal with (CO2: temporary spread blowout for Midland – Cushing, terminals segment: refinery outages reduced petcoke volumes, which was partially offset by a record coal export quarter.  Solid results from KMP, big midstream M&A deal at a big value, and higher natural gas prices drove the MLP Index higher this week.
Winners & Losers
The biggest winners and losers are shown below.  Of note, VNR may finally be moving (up 2.9% this week).  NRGM broke down this week, presumably on the news that Commonwealth pipeline project was definitively not going to happen.  Management indicated almost as much on the conference call for fiscal 1Q.   EVEP was at the bottom of the sector for the second straight week, not a great sign.


For the year to date, GLP reclaimed the top spot this week, leapfrogging EXLP, NKA and SMLP, all of which were down this week. If the MLP index was up 0.3%, but we went from five  40%+ YTD total return MLPs down to 2 this week, it stands to reason that the larger cap MLPs that are in the Alerian MLP Index caught more of a bid this week than small cap, high beta MLPs that have led the way so far this year.  When stocks are down, like this week, its good to see investors piling into the large cap, diversified MLPs that (for the most part) comprise the Alerian MLP Index.  Only 4 negative MLPs for the year, so no complaints as long as you were wise enough to allocate capital to MLPs.


The MLP Index is having a banner year so far, but when MLPs do well and optimism around MLP growth increases, GPs tend to outperform, which was been the case this year  (this week’s performance driven by ATLS, which was up 12.5% on heavy volume this week on news of the Teak acquisition by subsidiary MLP APL.  WGP was up 3.1% on light volume).  But this year has become the year of natural gas, which is up 28.1% YTD.


The picture above is of the poster my wife made on Tuesday to remind our neighbors and others that something happened in Boston and its ok to show that you care.  I wore Boston sports-related apparel all week, which eventually became a thing for people to do, although I see much more of it in Florida this weekend than I saw in Austin.  By the end of the week that was understandable because being less than 150 miles from West, TX (and the higher death toll), Austinites would probably have a hard time justifying a call of solidarity for Boston alone.

In any event, I definitely watched more cable news than I have in a long time this week, and I lost several hours of sleep following real time news on Twitter of both tragic events.  Hold your kids close, and make sure everyone important in your life knows how you feel about them, because it seems like there have never been more ways to die in the U.S. than there are right now.  Industrial accidents, terrorist attacks and lunatic rampages.  Even though cancer kills more people than any of those things, I guess my message would be: smoke ’em if you got ’em [where ’em is life].

News of the (MLP) Week

Pretty busy week.  We had an MLP GP change hands, we had a $1.0bn acquisition, an equity deal, and tons of distribution announcements.


  • Atlas Pipeline (APL) prices public offering of 10.3mm common units at $34.00/unit, raising $402.7mm in gross proceeds
  • Teekay Offshore (TOO) announces sale of 2.06mm common units to an institutional investor for total proceeds of $60mm, ($29.21/unit implied purchase price)

M&A / Growth Projects

  • Atlas Pipeline (APL) announces acquisition of TEAK Midstream, LLC, a natural gas gathering & processing company with assets in the Eagle Ford Shale, for $1.0bn in cash
    • APL to acquire 100% of equity of TEAK Midstream, LLC, a private midstream operator, for $1.0bn in cash
    • APL issued $400mm Series D Convertible Preferred units in private placement
    • To be funded with cash, borrowings, $400mm of preferred unit private placement and common equity offering above
    • TEAK assets are located in Eagle Ford Shale and include:
      • A 200 MMcf/d cryogenic processing plant
      • 265 miles of 20-24-inch high-pressure gas gathering and residue lines with 750 MMcf/d of capacity
      • 275 miles of low pressure gathering lines
      • A second 200 MMcf/d cryogenic processing plant expected to be in service during 1Q 2014
    • APL to spend approximately $100mm in growth capital to fund the second processing plant and other growth projects
    • 80% of TEAK gross margin derived from fixed-fee contracts, majority of volumes under minimum volume commitments
    • Run-rate Q4 2014 EBITDA expected to be $160mm from TEAK assets
    • This was a big auction process, with multiple rounds of bids, and APL is the winner…good for ATLS
  • American Midstream (AMID) announces sale of 90% of its GP and 100% of its subordinated units to an ArcLight Capital portfolio company called High Point Infrastructure Partners
    • High Point Infrastructure Partners, a portfolio company of ArcLight Capital Partners, acquired 90% of American Midstream GP, LLC, the GP of American Midstream and 100% of the subordinated units of AMID from AIM Midstream Holdings, an affiliate of American Infrastructure MLP Funds
    • AMID concurrently announced issuance of $90mm of Series A convertible preferred units to High Point in exchange for contribution of High Point’s operating assets and approximately $15mm in cash
    • Preferred units issued at $17.50/unit, a 3.8% premium to average 30-day price of AMID
      • Entitled to quarterly cash distributions of $0.25/unit and in-kind distributions of $0.25/unit for 6 quarters
      • After 6 quarters, will be entitled to receive greater of common unit distribution or MQD
    • High Point has agreed to forego a portion of the cash distributions to its subordinated units through the end of 2013
    • High Point is evaluating a permanent restructuring of AMID’s subordinated units and incentive distribution rights
  • American Midstream (AMID) announces acquisition of High Point Infrastructure’s operating assets and $15mm in cash in exchange for $90mm of Series A convertible preferred units
  • Plains All American (PAA) announces plans to construct new 310-mile, 20-inch crude oil pipeline from McCamey, TX in the Permian Basin to Gardendale, TX for a cost of $350mm to $375mm
  • Global Partners (GLP) announces approval from Bangor Planning Board to develop a compressed natural gas loading station in Bangor, Maine (expected to be open by end of August 2013)

Distribution Announcements (partial list)

  • Quarter over quarter increases:
    • WES: $0.54, +3.8%
    • WGP: $0.17875, +8.2%
    • KMP: $1.30, +0.8%
    • EPB: $0.62, +1.6%
    • KMI: $0.38, +2.7%
    • NGLS: $0.6975, +2.6%
    • TRGP: $0.495, +8.2%
    • LRE: $0.4825, +0.5%
    • TOO: $0.5253, +2.5%
    • TLLP: $0.49, +3.7%
    • OKS: $0.715, +2.1%
  • Flat quarter over quarter:
    • CMLP: $0.51
    • NSLP: $0.27417 (pro rata MQD)
    • TGP: $0.675
    • TLP: $0.64
    • XTEX: $0.33 / XTXI: $0.12
    • HCLP: $0.475
    • VNR: $0.2025 monthly

Have a good week everyone, hope you appreciate the post, which I wrote late the night before going to the Magic Kingdom at Disney by myself with two kids under 6yrs old…

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