×
Triangles background
OUR COMPANY AND AFFILIATES
CBRE GLOBAL INVESTORS

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers providing real estate and infrastructure investment solutions to over 500 clients worldwide.

INVESTMENT MANAGEMENT

CBRE Global Investors

CBRE Clarion Securities

CBRE Caledon Capital Management

Trammell Crow Company

MLPguy
CBRE GROUP

CBRE Global Investors is the investment management division of CBRE Group, Inc. the world’s premier commercial real estate services and investment firm.  The company’s shares trade on the New York Stock Exchange under the symbol “CBRE.”

REAL ESTATE SERVICES

CBRE

CBRE Blueprint
Our Company and Affiliates

This website uses cookies to improve the user experience. By using our website you consent in accordance with our Cookie Policy. Read More

ACCEPT
Triangles background
Back to Insights

January 14, 2017

Viewed 2477 times

Week Thoughts: MLPs Levering Down

MLPs paused their recent rally in the first full week of trading since before Christmas.  MLPs faced commodity headwinds Monday, and then equity indigestion Tuesday from the first two big midstream equity offerings of 2017 that combined to raise more than $2.3bn.
Weekly_1-13-17
Still Pulling Levers
MLPs started pulling levers in 2015 when it became clear oil wasn’t going to have a V-shaped recovery.  Those levers continue to be pulled today.  Some were never pulled or weren’t really options.  Before KMI cut its dividend, some thought maybe Rich Kinder would forego distributions on units he owned before cutting dividends to everyone else.  Others speculated that ETE would cut its distribution to support its MLPs or that Kelcy Warren might take a distribution haircut.  Those levers were never pulled, and dividend/distribution cuts have become a more palatable option.
 
Pulling Levers
The IDR structure has become a problem for the sector, but that problem becomes paralyzing when the IDRs are held within publicly-traded companies.  It used to be that a founder or family or small private group owned the GPs of most MLPs.  Investment bankers, private equity and IPOs changed all that.
The result is MLPs have levers to pull, but the levers become a “Trolley Problem” situation, where pulling a lever to save one group crushes another.
Trolley
The remaining MLPs that pay 30% or more of their total distributions to their IDRs: SXL/ETP, WES, TEP, OKS, TLLP, PSXP, HEP, EQM.  SEP and DPM are on the cusp as well.  Each one of those has either a pure-play publicly-traded G.P. or an affiliated public company with other assets, or in several cases, they have both.
MLP strategies change with each lever pulled.  KMI, MPLX, PAA, ETP/SXL, and now WMB have all dramatically changed their financial strategies multiple times over the last few years.  They pulled levers one by one, and the resulting changes in strategies are the progression of increasingly dire financial circumstances.
KMI first lowered its growth rate, scaled back capex (after buying Hiland Pipeline), then did a large preferred offering, and finally cut its distribution outright.  PAA issued equity, slowed distribution growth, reduced capex, sold non-core assets, and ultimately swapped out its IDRs for new units and cut its distributions.
WMB got a late start, caught in limbo for almost a year as the ETE merger tromped through leaving carnage in its wake.  But WMB reduced capex, sold assets, and cut its dividend.  Then, after re-vamping its board of directors, swapped out its IDRs for units, issued $1.9bn in common equity and ramped the distribution back up.  It’s hard to keep track.
There remain a few MLPs that have yet to pull all their levers and may still need to. The obvious and easy levers have all been pulled.
Winners & Losers
The winners and losers chart shows some larger MLPs near the bottom and smaller cap MLPs near the top.  No real themes among trading other than that.  There was choppy trading even among MLPs with similar value propositions or sectors this week.  DM was among the worst performers, while other drop-down MLPs like VLP, PSXP and other traded up.  On the chart below one compression MLP was in the top 5 while another was in the bottom 5.  The market continues to sort itself out after analyst upgrades and before earnings season.
Top5Bottom5_1-13-17
Top5Bottom5_1-13-17_chart
YTD Leaderboard
Two weeks in and there is already a wide spread between winners and losers.
Top5Bottom5_1-13-17_YTD
Notable that DPM pulled itself out of the hole its strategic transaction put it in last week.
Top5Bottom5_1-13-17_YTD_chart
General Partners and Midstream Corporations
WMB was clearly the biggest loser in the sector, dramatically underperforming its MLP (WPZ +3.0%) after its massive equity offering.  ETE also issued equity and found itself near the bottom of the group.  KMI’s latest approval for the Trans Mountain Pipeline expansion has raised expectations heading into earnings next week.  AROC led all GPs and corporations for a second straight week as the market re-discovers the compression business.
Top5Bottom5GPs_1-13-17
Top5Bottom5GPs_1-13-17_chart
News of the (MLP) World
MLP customers continue to trade acreage across hot and cold basins.  This week Parsley, WPX added more acreage in the Permian, and Sanchez teamed with Blackstone to take down APC’s Eagle Ford position.
Second tier basin transactions like Sanchez’s have the potential to add activity to areas with low or no expectations of activity.  Sanchez plans to run 4-5 rigs vs. none planned if APC retained the acreage, adding up to 100+ more wells than expected.  Last year, upstream equity offerings, balance sheet fixes and contract renegotiations drove some MLP performance.  This year, new acreage owners will announce plans to deploy fresh capital that should offer greater visibility for some MLPs.
News-of-the-World
Capital Markets

  • Williams Companies (WMB) priced public offering of 65.0mm shares at $29.00/unit, raising $1.885bn in gross proceeds (press release)
    • Overnight offering, priced at 9.2% discount to prior closing price, and closed down 1.7% from pricing in the next trading session
    • WMB will use proceeds to fund purchase of $2.0bn worth of WPZ units in a private placement
    • Huge deal, which caused some indigestion across the midstream sector the next day
      • Biggest follow-on equity offering from a U.S. midstream company since WMB issued 53mm shares at $57.00/share in mid-2014 to fund acquisition of GP of ACMP
  • Energy Transfer Equity (ETE) announced private placement of 32.2mm units at $18.00/unit sold to institutional investors, raising $580mm of gross proceeds (press release)
    • ETE will use the proceeds to purchase 15.8mm common units of ETP for $568mm ($35.90/unit)
  • Energy Transfer Partners (ETP) announced pricing of $1.5bn of senior notes (press release), including:
    • $600mn of 4.20% notes due 2027 at 99.786% of par
    • $900mnof 5.30% notes due 2047 at 99.483% of par
  • Kimbell Royalty Partners (KRP) filed initial S-1 to raise up to $100mm in an MLP IPO (filing)
    • KRP is an owner of mineral and royalty interests in 3.7mm gross acres and overriding royalty interests in 0.9mm gross acres
    • KRP will distribute all cash every quarter in a variable distribution format
    • KRP expects to generate $24.9mm in EBITDA in 2017

Growth Projects / M&A

  • Williams Companies (WMB) and Williams Partners (WPZ) announced a series of transactions to simplify the combined enterprise and reduce leverage (press release)
    • WMB agreed to eliminate its incentive distribution rights (IDRs) in exchange for 289mm WPZ units valued at $11.4bn (or ~12x current annualized G.P. distributions)
    • WMB will hold 72% of WPZ’s outstanding units after the IDR elimination
    • WMB announced 50% increase in dividend to $1.20/share annualized
    • WPZ announced 29% reduction in distribution to $2.40/unit annualized
      • WPZ outright distribution cut comes just a few years after a stealth distribution cut to merge with ACMP
      • Joins the dubious list of MLPs to have executed both stealth and outright distribution cuts, alongside the likes of APL, XTEX, HLND, CEQP, KMP
    • Other announcements: WMB announced $2.0bn private placement into WPZ (see above) and WPZ announced expectation for approximately $2.0bn in proceeds from asset sales, the combination of which will alleviate WPZ’s need to access the equity markets for “several years”

Other

  • Blackstone (BX) talks to acquire Energy Transfer (ETP) assets have come to an end (Bloomberg)
    • The reports of discussions first surfaced in the WSJ on 12/22/16, which mentioned Blackstone and former ETE CFO Jamie Welch potentially teaming up to acquire assets worth up to $5bn
  • EQT Midstream (EQM) disclosed resignation of COO Randall Crawford, effective 2/28/17 (filing)
    • Crawford has been the face of EQM at industry conferences since IPO
  • American Midstream (AMID) disclosed resignation of COO of Matthew Rowland, effective by 3/1/17 (filing)
  • John Fox, former CEO of MarkWest Energy issued a letter to Marathon Petroleum (MPC) opposing the merger (article)
    • Fox supports the IDR exchange for MPLX units, but would prefer it to be immediate, and believes dropping down MPC assets into MPLX dilutes the growth story around the legacy MWE midstream footprint
  • Kinder Morgan’s (KMI) Trans Mountain pipeline cleared its last major regulatory hurdle after receiving environmental approval from British Columbia’s government (Bloomberg)

Distribution Announcements
Distribution announcements_1-13-17

RELATED CONTENT
No posts matching your criteria
MLPguy Post
Midstream Movember: Updated Returns Through Month End Because the end of the month fell on a Monday, we felt it might be useful to post a wrap up on monthly performance for midstream, outside of the normal weekly cycle.
MLPguy Post
Week Thoughts: Midstream Parade Goes On Energy stocks (midstream included) continued their recent run of positive stock performance in this short week, helped by ongoing positive vaccine data points. It was the best Thanksgiving week return for midstream since 2008 (when MLPs were up 20%).
MLPguy Post
Week Thoughts: Midstream Hosts Another Large Gathering Another vaccine update, another rally for energy stocks and midstream stocks. Midstream was green all week until taking a breather Friday. Stocks and the infrastructure index were slightly negative, and utilities were hit hard.
MLPguy Post
Week Thoughts: Midstream Goes Green on Vaccine Energy stocks were buoyed by the big vaccine news Monday, and the gains held for the week overall. XOP spiked 20.4% this week, XLE was up 17.1%. Midstream wasn’t quite that strong but posted with historically significant gains Monday and for the week
MLPguy Post
Week Thoughts: Stocks Get Mandate, Midstream Flips Red The market (and midstream for most of the week) seemed to shrug off the ongoing presidential election malaise this week.
MLPguy Post
Week Thoughts: Pain Distributed Across Markets, Midstream Midstream and MLPs returned to earth this week, following lower oil prices and the market lower. Solid earnings reports from some of the larger names weren’t enough to offset macro headwinds and ET’s large distribution cut.
MLPguy Post
Week Thoughts: MLPs Ramp into Earnings MLPs resumed their October rebound this week with their best week since early August. Energy stocks outside of midstream also had a strong week on the back of merger mania in upstream with another E&P merger announced this week and others rumored.
MLPguy Post
Week Thoughts: Midstream Flattens Friday Midstream and MLPs looked to be coasting to a third straight week of solid gains, but a sharp selloff across energy stocks Friday erased the gains for the week.
MLPguy Post
Week Thoughts: Midstream Unchained, MLP Eruption MLPs followed up last week’s modest bounce with a huge week in a risk-on surge for equity markets, commodity markets and everything else this week.
MLPguy Post
Week Thoughts: Midstream Asymptomatic as Oil Declines The stock market broke its losing streak, and MLPs and U.S. midstream came along for the ride this week, bouncing slightly after a rough week, month, quarter and year. Weakness in Canadian midstream dragged down the AMNA Index.
MLPguy Post
Week Thoughts: Midstream Canceled Again The S&P 500 closed negative for a 4th straight week, while midstream had its worst week since June in what has been a brutal September so far.
MLPguy Post
Week Thoughts: Midstream Yield High, Interest Low Midstream stocks bounced back early in the week after two rough weeks, but then as the market rolled over later in the week, midstream and MLPs were dragged back down.
MLPguy Post
Week Thoughts: Another Setback Setback for Midstream Midstream struggled again this week, in a risk-off week for stocks and commodity prices.
MLPguy Post
Week Thoughts: Midstream, The Final Season With the market taking a very well-publicized breather this week, midstream followed the market and oil prices lower. MLPs were down each day this week and finished down 4.7%.
MLPguy Post
Week Thoughts: Stocks Up, Midstream Down MLPs staged a comeback effort late in the week (+3.7% Wednesday to Friday), but finished down vs. last week, and well below the S&P 500’s 3.3% gain.
MLPguy Post
Week Thoughts: Midstream Militia Retreats After a few weeks of positive performance, midstream rolled over this week. Energy stocks in general were negative, despite benign commodity price movements and strength among market indexes (which clearly are dominated by tech stocks).
MLPguy Post
Week Thoughts: Blue Flame Special for Midstream Midstream followed up last week’s big week with another strong week of price action. Midstream’s gains were mostly isolated to Monday and Wednesday, but those two days were good enough for a 3% week for the group overall, better than the S&P 500, utilities and infrastructure.
MLPguy Post
Week Thoughts: Midstream Restraint Rewarded Midstream was higher each of the first 4 days this week, before taking a breather Friday, to finish up 5-6% over last week. MLPs were particularly strong, especially gathering & processing stocks....
MLPguy Post
Week Thoughts: Midstream Still Waiting for Its Kodak Moment Midstream underperformed this week, even after counting the juicy dividends that were paid this week. Tech stocks, utilities and other sectors reported strong earnings and saw stock price gains as a result.
MLPguy Post
Week Thoughts: KMI Anthem Over, Play Ball! Midstream performance was mixed this week, with strength in MLPs offset by weakness among large U.S. corporations like WMB and KMI, the latter of which reported less than stellar 2Q results coupled with low energy commentary.
MLPguy Post
Week Thoughts: Positive Pipeline Performance Pre-Earnings Midstream bounced back this week, riding a strong market, stable oil prices and the ramp into distribution season.
MLPguy Post
Week Thoughts: Dakota Access Denied Midstream struggled in an otherwise strong week for the market, hurt by a court decision that rocked the Bakken while not offering much confidence for any midstream company seeking to develop energy infrastructure going forward.
MLPguy Post
Week Thoughts: Market Party, MLPs Stay Home Stocks of all kinds were positive in this pre-holiday week, except for MLPs. Midstream overall lagged the broad market, despite oil and natural gas price gains.
MLPguy Post
Week Thoughts: Midstream Dusted After a solid start to the week, midstream stocks collapsed over the last four days this week, including big declines Tuesday and Friday.