March 5, 2017
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MLPs bounced back this week, despite spiking interest rates and some oil volatility. MLPs finished up 1.1%, riding the wave of optimism that took over the market on Wednesday following President Trump’s tempered joint session of Congress speech. No equity deals and execution of previously announced M&A also probably helped MLP performance.
Oil hasn’t closed a week below $53/bbl since the last week of November. Complacency? Maybe. But it feels much better than extreme volatility. Lighter NGL prices were hammered this week, in stark contrast to both natural gas and oil prices, as the products at the light end of the barrel develop markets of their own. EPD controls a big part of the U.S. NGL value chain, and their views on those developing markets will be a major part of the EPD analyst day event next week.
Pivot to Execution, Where’s the Bar?
With 4Q earnings out of the way and 2017 guidance released for most in the midstream sector, the next few quarters will feature MLPs pivoting from talking about expectations to delivering on them. The degree of difficulty for meeting expectations depends on where the bar has been set.
MPLX has laid out a simple plan that requires almost no cooperation from the market, given that MPC is taking back all the equity for multiple large drop-downs throughout the year. This week’s drop-down was right in-line with expectations laid out just two months ago. In other words, it’s a very low bar.
The market’s exuberant response to the MPLX drop-down was reminiscient of the praise the market showered on President Trump for what was a pretty standard speech.
In other cases, the bar is set a bit higher. Midstream players may need cooperation from commodity markets, capital markets, producer activities or in some cases from eager private infrastructure investors willing to JV a massive controversial pipeline with an upfront promote payment. It’s not just about promises made and promises kept, it’s about making sure the market isn’t embellishing your promises so there is a let down when you deliver on your promises. But that’s the tricky dance of the market, like trying to carry a giant couch up a tight staircase.
Status Update
MLPs finished February with a 0.4% positive return, just enough to run its streak of positive months to 4. If March finishes positive or even down slightly, the quarter will come in better than the last two quarters.
Historically, March has been a mixed month with average returns of 0.7% since 1996, and has been positive just 11 out of 21 prior months. April has been more consistent with 19 out of 21 positive, including 12 in a row.
Winners & Losers
Wide divergence in performance in MLP land this week. Big losers from last week FGP and CNNX led the way this week. OKS continues to be coated in Teflon, it seems, rallying after posting weaker results in 4Q. On the downside, MMLP’s fell back to earth after last week’s pop. I’m not sure what happened with SDLP, to be honest, I’ve taken it off my radar.
YTD Leaderboard
OKS moved up a few spots to 3rd place for the year so far among MLPs, but it won’t be an MLP much longer. NBLX extended its lead. EEP, SPH and USDP continue to pace the downside of the sector, joined this week by CNXC and SXCP.
General Partners & Midstream Corporations
OKE led all midstream corps and GPs, followed closely by WMB and PAGP. After two straight weeks as the top performer, TEGP took a break from the top 5. TRGP rebounded from last week’s decline.
News of the (MLP) World
After last week’s flurry of capital markets action, MLP announcements turned to execution on M&A already included in guidance for KMI, MPLX and TCP, along with another simplification that will eventually remove another MLP from the universe less than 3 years after its IPO.
Capital Markets
Growth Projects / M&A