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August 30, 2015

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Week Thoughts: MLPs Ride Oil Squeeze Higher

MLPs plumbed new depths on Monday with a 3.8% decline, but then rallied Tuesday with the market and sustained the rally as oil prices spiked higher later in the week, finishing up 5.1% overall.  Oil prices settled above $45/bbl, a 12% increase over last Friday’s price.  MLPs outperformed the S&P 500 and way outperformed utilities as the oil price rally overwhelmed interest rate increases.  Short covering and limited trading volume probably contributed to the rally.  If the MLP sector can string together 2 positive weeks ahead of Labor Day, then the next challenge will be the first equity offering of the fall season.
Weekly MLP Review_8-28-15
MLPs were up more than 1% for 4 straight days to finish the week, gaining 9.2% in the process.  The Index has almost never had a 4-day run straight up like that.  The only other times were (1) immediately following the flash crash in May 2010, (2) April 2009 exiting the financial crisis, (3) late January 2009, and (4) early January 2009.  Basically to get that kind of a sustained rally over a 4 day period, MLPs have to have been severely oversold immediately prior to the rally.
1 percent streaks
This week didn’t crack the top 10 list of all-time best weeks for the index.  It was the 4th best week for the index in the last 5 years, but marginally lower than the rally from 2 weeks ago.
Pool’s Open
One of the last vestiges of my previous life in Austin are the email updates that I still somehow receive from the community association in charge of the pool in my former neighborhood.  This summer (a couple of times), I received news that there was a fecal release and the pool would be closed for cleaning for a few days. A few days later I get an email saying the pool is all cleaned up and opened again.  Kind of like the pool scene in the Movie Caddyshack when a Baby Ruth bar clears the pool.

“It’s no big deal”

A few weeks ago, an executive made a similarly unplanned release that when combined with oil price weakness made the MLP sector un-swimmable for a while.  Is the action this week the signal that all’s clear to jump back into the MLP, or another in a long line of head fakes?
Month End Preview
Barring a 4.7% rally on Monday, August is going to be another negative months in what has been the worst 12 month stretch in the history of the MLP sector, as measured by number of negative months.  We’ve had just 2 positive months out of the last 12.  Only one other time period had less than 4 positive months in a 12 month stretch (the 12 months ended 12/31/08).  Prior to this year, there had only been one instance ever of 4 straight negative months for MLPs, we’ve now had 2 in a year.  The carnage will stop at some point, as stronger MLPs continue to replace weaker upstream MLPs and as things stabilize.
Winners & Losers

In sympathy with the spike in oil prices, E&P MLPs were revived this week to dominate the top five, with each one up more than 30%.  There were no clear trends or company specific news among the names that made up the bottom five, other than their small size.



USAC jumped ahead of CLMT as the top performer YTD while HEP moved into the top five replacing VLP.  Upstream MLPs continue to dominate the bottom five for the year despite this week’s rally.  However, MCEP did replace BBEP.



General Partner Holding Companies

On average, GPs underperformed MLPs this week although there was no company specific news that drove share prices.  ATLS far outpaced other GPs this week recapturing some of last week’s significant weakness.



News of the (MLP) World
Light news week, as you would typically expect this late in summer.  Don’t expect much next week, either, unless there is some M&A activity that comes out.  The stock-specific news with the biggest impact this week seemed to be insider buying transactions among MLP executives and board members in the following stocks: CAPL, EMES, BWP, WNRL, NS, WPT and EMES.  I probably missed a few others, but it was a significant trend this week that hopefully will continue, particularly around seemingly broken MLP stories.

  • Tesoro Logistics (TLLP) filed equity distribution agreement to sell up to $750mm in common units at-the-market (filing)
  • EQT Midstream (EQM) filed equity distribution agreement to sell up to $750mm in common units at-the-market (filing)

M&A / Growth Projects

  • Energy Transfer (ETE/ETP) is reportedly a bidder for Magnum Hunter’s Eureka Pipeline (Reuters)
    • Magnum Hunter Resources said in June that it expected to raise $600-700mm by selling its 45.5% stake in Eureka Hunter
    • Basically, if something is reportedly for sale, Energy Transfer is involved
    • The report also mentions that Magnum Hunter has reached out to Summit Midstream and Crestwood to gauge their interest in the pipeline


  • CAPL announced 2.7% distribution increase and plans to announce future distributions in conjunction with quarterly results (press release)
  • Linn Energy (LINE) CFO Kolja Rockov resigned (press release)
    • Kolja is a former RBC banker who has been CFO of LINE since its IPO back in 2006, and was one of the more interesting characters in the MLP space during his tenure
    • MLP spectators will be sad to him leave, like Saturday Night Live writers will be sad to see Donald Trump leave the presidential campaign trail
  • Summit Midstream (SMLP) COO Rene Casadaban resigned (press release)
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