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February 9, 2014

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Week Thoughts: MLPs Power Through Ex-Dates

The MLP Index was up for a 5th straight week, matching the S&P 500’s positive week on a total return basis.  The S&P 500 was up 0.8% and MLPs were up 0.3%, but +0.9% counting distributions.  Strong MLP earnings and generally positive 2014 outlooks helped MLPs trade well even with a slew of ex-distribution dates, which are typically a drag on MLP prices this time each quarter.  Liquid energy commodities were positive this week: oil closed just below $100/bbl, ethane was up 14.3% to $0.40/gallon, and propane traded up 5.9% to $1.66/gallon.  Natural gas front month futures price dropped 3.4%, but remains 10% higher year to date.

Weekly MLP Review_2-7-14

It was a fairly unusual week here in the Philadelphia area (at least I hope its unusual), on top of an already unusually awful winter to date (or so people tell me).  Heavy snow blanketed the city Monday, then Tuesday night an ice and rain storm caused branches around town to fall to the ground, sometimes passing through power lines on their way down (below is a pic of the tree in my neighbor’s yard).  More than 650,000 homes and businesses lost power Tuesday night.  Our office has a generator that kicked on, so we operated through the outage, but between the snow day Monday and the outages, my daughter only had a half day of school this week, which means an increasingly short summer.


The electric utility companies prioritized repairs based on the number of people impacted in a given area.  It turns out my street’s issues were very low on the list, and it wasn’t until 7pm Saturday that power service was restored to my house.   Given high 20s temperatures outside, the temp in my house dropped to as low as 42 degrees.  We fortunately had another place to stay, so we abandoned our house.  Now that we’re back in everything will get back to normal this week, but there are still a few thousand folks out there without power and without the convenience of a warm alternative.  So, forgive me if this week’s post is a bit light on insight.
Winners & Losers
NS’s earnings release sent its unit price shooting 9.0% higher this week, all the way up to levels not seen in…2 months.  TLLP reported results that seemed to be lower than the street expected, but the market liked [something about them].  GSJK was down the most on now news, except for last week’s distribution increase, but perhaps there was read through from poor weather impacting their operations in certain areas.  EPB may have been down on investor rotation into SEP, which reported this week and is a comp of EPB.  But SEP announced distribution guidance calling for 7%+ distribution growth in each of the next two years, compared with 0% for EPB.


For the year so far, IPO Cypress remains comfortably in the lead and there remains a wide disparity among the best and worst performing MLPs.


News of the (MLP) World
No equity deals this week, but several MLPs made their intentions to issue equity explicitly known, with a fresh IPO filing, a few shelf registrations and a fresh ATM.  The first debt offerings of the year were large, popular and priced at attractive rates.
Earnings season continued with several high profile MLPs reporting largely positive results.  PAA beat analyst expectations and raised its growth capex estimate for 2014, but trimmed guidance slightly.   NS’s EBITDA for the 4th quarter were light of consensus estimates, but guidance that calls for 1.0x distribution coverage in 2014 was welcomed by the market.  NS management is clearly focused on achieving distribution coverage, given their press release headline highlighting NS’s “highest quarterly distribution coverage since 3Q 2011” (at 0.89x!) (press release).  MMP reported strong results due to high activity on its midwest refined products pipeline network, and raised distribution growth guidance to 20% for 2014.
The next week of earnings announcements should be interesting as well.  Larger MLPs BWP, EEP and NGLS all report next week, along with high growth MLPs NGL and EQM.  BWP and EEP have recently struggled with sub-1.0x distribution coverage ratios, and the market will be eager to see if coverage is moving in the right direction.



  • LRR Energy (LRE) files equity distribution agreement to sell up to $75mm worth of common units at-the-market (filing)
  • USA Compression (USAC) files S-3 to register $1.9bn of common units, including $1.0bn primary and $900mm worth of units owned by its private equity backers (filing)
  • Antero Midstream Partners (AM) files initial prospectus for an MLP IPO of up to $500mm (filing)
    • Assets include midstream assets in the Utica and Marcellus backed by 20-year acreage dedications and fee-based contracts with Antero Resources
    • There is also a component of the business that is water distribution and management for the purposes of supporting drilling (so it’s MLP qualifying)
  • Martin Midstream (MMLP) files S-3 to register up to $300mm of primary common units (filing)


  • Regency Energy (RGP) prices $900mm of 5.875% senior notes due 2022 at 98.423% to yield 5.97% (press release)
    • Offering was upsized from $600mm originally marketed
    • Use of proceeds to be used to term out borrowings on its credit facility and for general partnership purposes
  • Enterprise Products (EPD) prices $2.0bn of senior notes in two tranches (press release)
    • $850mm of 3.90% senior notes due 2024 at 99.811%
    • $1.15bn of 5.10% senior notes due 2045 at 99.845%
    • Use of proceeds: $500mm will repay outstanding 5-year notes issued in 2009 at 9.75%, the rest will be used for general partnership purposes

M&A / Growth Projects

  • NuStar Energy (NS) announces agreement with Occidental Petroleum to transport NGLs from Mont Belvieu to Corpus Christi through currently idled, 110,000 bbls/d capacity pipeline (press release)
    • NS has begun work to re-activate the line, reverse its flow and convert it from refined products line to NGL line
    • Pipeline conversion expected to be completed and in full operation in the second quarter 2015
    • Expected to contribute $23mm in incremental EBITDA to NS once in service
  • DCP Midstream (not DPM) announces nearly 500MMcf/d of natural gas processing in the DJ Basin and Eagle Ford Shale (press release)
    • In the DJ Basin, DCP will construct a new 200MMcf/d Lucerne 2 Plant with an expected in-service of 2Q15
    • Also in the DJ Basin, DCP will expand the throughput capacity of the O’Connor Plant from 110MMcf/d to 160MMcf/d
    • The Lucerne 2 Plant and O’Connor Plant will connect to the Front Range NGL Pipeline, in which DCP Midstream Partners (DPM) holds a 33% interest
    • DCP announced the 200mmcf/d Goliad Plant in the Eagle Ford Shale recently commenced operations
  • Crosstex Energy (XTEX) announces $70mm pipeline extension project (press release)
    • XTEX has signed a new long-term, fee-based agreement with a major oil and gas producer in the region
    • To support this new agreement, XTEX will construct a new 35-mile, 12-inch diameter high-pressure pipeline that will provide gathering capacity (100 mmcf/d) for the Bearkat natural gas processing complex (previously announced)
    • Will serve Howard, Martin and Glasscock counties
  • New Source Energy Partners (NSLP) announces $18.8mm acquisition of working interests and leasehold rights in properties in the Southern Dome field in Oklahoma from Exelon Corporation (press release)
    • $6.9mm was paid in cash and $11.9mn in the form of 488,667 common units
    • The transaction closed on January 31, 2014 which an effective date of August 1, 2013
    • Interests acquired include 3 month average production of ~490 Boe/d (15% NGL, 51% natural gas and 34% oil)
    • Average working interest of 54.3% in 23 producing wells


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