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March 12, 2017

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Week Thoughts: MLPs Plan, Oil Laughs

MLPs wilted this week, down 3% under pressure from oil’s return to the market’s front burner.  Other negative factors were rising interest rates rising and a stock market not achieving any new highs.  Oil was down more than 9% week over week, breaking below $50/bbl for the first time this year.  Natural gas crossed back onto the good side of $3.00 on colder weather.  Propane and ethane responded positively in kind.
Oil prices dominated energy trading, but showed some resilience after bouncing off the 200-day moving average near $48/bbl.  Perhaps this week’s oil scare will pass as just a brief reminder of the tenuous environment within which billions of dollars of drilling capital and investment dollars are being allocated.
Oil inventory remains bloated in the U.S., but global oil inventory has declined and production outside of the U.S. is in structural decline barring some massive recovery in price.  Commentary in the market this week was that stunning U.S. production growth outlook is making it necessary for OPEC to extend the freeze beyond June.
It’s a shame the midstream entities sold off sharply with oil prices this week, given they are poised to benefit directy from growing U.S. production that apparently caused the oil price drop.  After all the self-help midstream companies have executed on to improve leverage and distribution coverage, midstream companies are better-positioned to weather short term oil price volatility.
Self-help efforts included distribution cuts (with a few still likely to come), which have soured retail investors on MLPs.  Lack of a steady retail bid makes it hard for MLPs to outperform when oil sells off.
EPD Draws MLP Crowd
The usual herd of MLP analysts descended on the Houstonian for EPD’s annual update.  The night before, EPD hosted a dinner in Union Station at Minute Maid Park, the home of the Astros.
I took this picture inside the stadium, and upon reflection, its an interesting image.  EPD’s analyst day seemed more crowded than ever, and it’s a very big deal in the MLP sector.  But outside of the MLP mafia of investors and analysts, I get the sense its not such a big deal.
EPD_Minute Maid
EPD spent a few slides late in its presentation distringuishing itself from the MLP sector on the one hand and drawing comparisons to other major companies (including its hypothetical rank within the S&P 500). In distinguishing from other MLPs, EPD included this chart (among others) that breaks down the distribution cuts across sub-sectors.
Distribution Cuts
EPD noted it would rank 4th in market cap among the largest U.S. energy companies, ahead of many household names, and 86th in market capitalization among all S&P 500 companies.
Market Cap
These are interesting points for EPD to make, but EPD is preaching to a mostly empty stadium, save for those in the MLP crowd already.  Over time, EPD may want to fill up that stadium.  EPD was open in the Q&A session that management is always evaluating its position as an MLP and would be open to converting to a corporation if there was ever a lack of access to capital.  Stay tuned.
Winners & Losers
RMP beat most MLPs this week, gaining nearly 6% on Friday’s news that it will be the newest member of the Alerian MLP Infrastructure (AMZI) index.  GLP reported results this week, which were well-received on Thursday when most MLPs were down.
On the downside, CNNX went from near the top last week to near the bottom in an ongoing bout of volatility for CNNX since topping out at $24.76 in late January (down 12% since).  CCLP was down sharply after filing a $300mm equity shelf to make it 2 straight weeks in the bottom 5.  SDLP took the bottom spot for a second straight week, as the outlook for sponsor support dims further.
YTD Leaderboard
NBLX still leads the way, but experienced its worst week since IPO with a 7.2% pullback.  NBLX peaked at $52 in the middle of last week, closed this Thursday at $46.56/unit, down right around 10% from peak, then rallied 2.9% Friday.  GLOP climbed into the top 5, helped by the AMZ index announcement Friday.
Let me check, yep, EEP is still down at the bottom of the sector and its sponsor ENB still hasn’t done anything to reduce uncertainty created around plans for its distribution after its late January bombshell guidance update.  ENB closed the Spectra acquisition more than a week ago, but there appears to be no rush in updating the market on ENB’s plans for several of its subsidiary MLPs, both old (EEP/MEP) and new (SEP).
General Partners and Midstream Corporations
GPs and corporations, those typically more heavily owned by institutions than MLPs, had big league underperformance compared with MLPs this week.  Those with high correlations to oil prices were hit harder than others (AROC, SEMG, PAGP, LNG fall in that category), but every one of these companies declined this week.  TEGP is a bit of an outlier among the big losers, given that oil prices have little impact on their business.  KMI’s Trans Mountain news may have helped it avoid oil correlation this week.
News of the (MLP) World
For a second week in a row, there were no equity offerings in the MLP space, although there were several debt deals.  KMI’s update on Trans Mountain was probably the biggest news of the week, upstaging EPD’s standard analyst day update and obligatory fractionation train announcement.  Also of note, the AMZ is inching closer towards 50 MLPs again, hitting 45 after new names were added.
Capital Markets

  • Several bond issuances priced this week, including:
    • Enable Midstream (ENBL) $700mm of 4.40% senior notes due 2027 at 99.615% of par (press release)
    • Semgroup (SEMG) $325mm of 6.375% senior notes due 2021 of 98.467% of par (press release)
    • Crestwood Midstream, subsidiary of Crestwood Equity (CEQP) $500mm of 5.75% senior notes due 2025 (press release)
  • Navios Maritime (NMM) entered into $405mm Term Loan B (press release)
    • Loan has a three and half year term and was priced at LIBOR +500 bps
  • CSI Compressco (CCLP) filed S-3 to register $300mm of equity (filing)

Growth Projects / M&A

  • Kinder Morgan (KMI) provided update on Trans Mountain Pipeline expansion project (press release)
    • Trans Mountain delivered a final cost estimate (C$7.4bn vs. previous C$6.8bn) and revised tolls to its shippers who had the option to keep their volume commitments or turn them back and pay their share of development costs incurred to date
    • Only 22k bpd, or 3% of the previously committed barrels, have been turned back, but will be offered in a pending open season
    • Another hurdle cleared for Trans Mountain, with FID and JV announcements up next, within the next 3 months for both is the expectation
  • Enable Midstream (ENBL) announced open seasons for Oklahoma System expansion projects (press release)
    • Proposed projects provide natural gas transportation solutions in excess of 600,000 dekatherms per day (Dth/d) for growing Anadarko Basin production
    • Foundation shipper secured with a long-term, 205,000 Dth/d commitment
  • American Midstream (AMID) completed previously announced merger with JP Energy (JPEP) (press release)


  • Williams Companies (WMB) CFO Donald Chappel sets plan to retire, targeting late 2017 (filing)
    • WMB is initiating a search process for his successor
    • Chappel has been CFO of WMB since 2003, navigating WMB through periods of great success and through very challenging financial situations in the beginning and end of his tenure
  • Alerian announced results of quarterly review with additions to indices below (press release)
    • Alerian MLP Index (AMZ) and Alerian MLP Equal Weight Index (AMZE)
      • GasLog Partners (GLOP) and Western Refining Logistics (WNRL)
    • Alerian MLP Infrastructure Index (AMZI)
      • Rice Midstream (RMP)
    • Alerian Small Cap MLP Index (AMSI)
      • Kimbell Royalty Partners (KRP)
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