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August 24, 2014

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Week Thoughts: MLPs Up Despite Heavy Price for Light Oil

MLPs (+0.5%) followed the broad market (S&P 500 +1.7%) higher this week.  The MLP Index was down on Friday, breaking a 6 day winning streak, and marking just the 2nd negative day in the last 10 trading days, over which time the index rose 6.4%.   MLP Index returns were held back by some deal hangover weakness in EPB (-2.1%) and KMP (-1.6%).
Weekly MLP Review_8-22-14
Energy commodity prices continue to be under pressure.  WTI Oil futures price dropped below $95/barrel this week, and is now down around 11% since this time last year.  Natural gas price was higher week over week, but remains significantly lower than the polar vortex-induced heights it reached earlier in 2014.  The light end of the NGL barrel was split: ethane followed natural gas higher and propane followed oil lower.
After a weekend that has involved 20 hours of driving with 3 kids and a mini-van (plus 3 Kindles, 2 Nintendo DS’s, and an iPad), I’m going to keep the poetic waxing to a minimum this week in an effort to recharge the verbosity for a week with more MLP action.
Winners & Losers
Small-cap crude and refined products logistics MLPs DKL and WNRL led the sector higher.  DKL was the beneficiary of an analyst upgrade and other positive research notes this week, after very strong 2Q earnings a few weeks ago.  WNRL seemed to rise in sympathy as a fellow small cap growth MLP.  Each of these two MLPs is expected to grow distributions 10-15% per year over the next few years, but neither has the massive pool of drop down assets that are driving expectations of 20%+ distribution growth for MPLX, PSXP and VLP.  The valuation gap between those two groups narrowed this week.
On the downside, LGP and MMLP were down this week after very strong price action the last few weeks following M&A announcements.  No actual news from any of the top or bottom 5 this week.
Year to date, CMLP caught a bid this week (+5.3%) and edged closer to escaping the bottom 5.  OILT dropped out of the top 5, replaced by GLOP.
News of the (MLP) World
The second half of August is largely paperwork catchup time for the MLP capital markets.  Last week, we saw 3 recent IPOs file new S-1s to sell equity at some later date.  This week we saw similar filing activity, but little actual capital markets activity.

  • Tesoro Logistics (TLLP) prices 2.1mm unit offering at $68.57/unit, raising $144mm of gross proceeds (press release)
    • Overnight bought deal, priced at 2.8% discount to prior closing price
  • Plains All American Pipeline (PAA) files equity distribution agreement to sell up $900mm worth of common units at the market (filing)
    • 21 underwriters participating, which is a lot
  • NGL Energy (NGL) files S-3 to register up to $300mm of common units (filing)
  • ONEOK Partners (OKS) files S-3 to register up to $650mm of common units (filing)
  • Martin Midstream (MMLP) announces $45mm sale of common units to sponsor Martin Resource Management (press release)
    • With this purchase, Martin Resource now owns 19.7% of the outstanding units of MMLP
    • Funds to be used to reduce borrowings on MMLP’s revolving credit facility that were drawn on to fund the acquisition of additional interests in Cardinal Gas Storage announced last week

M&A / Growth

  • Plains All American Pipeline (PAA) announces plan to construct crude oil pipeline from Cushing, OK to Valero refinery in Memphis (press release)
    • PAA’s new Diamond Pipeline will have capacity of 200,000 bbls/d
    • The pipeline is expected to cost $900mm and to be completed by late 2016, and is supported by a long-term contract with Valero
    • Valero will retain the option to buy into a 50% stake in the pipeline, and can exercise that option any time before January 2016
  • Natural Resource Partners (NRP) announces $205mm acquisition of VantaCore Partners (press release)
    • VantaCore is a privately-held partnership specializing in construction materials
    • VantaCore owns and operates three hard rock quarries, six sand and gravel plants, two asphalt and a marine terminal
    • NRP expects VantaCore to $25mm in EBITDA over the next 12 months (8.2x multiple)
    • VantaCore was owned by Trilantic Capital Partners, Kayne Anderson Energy Development, Hartz Alternative Investments and Corridor Private Holdings
  • EnLink Midstream Partners (ENLK) announces $250mm condensate pipeline project in the Utica (press release)
    • ENLK will construct a new 45-mile, eight-inch condensate pipeline and 6 natural gas compression and condensate stabilization facilities
    • Project is supported by a long-term, fee-based agreement with Eclipse Resources for compression and stabilization services and for the purchase of stabilized condensate


  • Enterprise Products Partners (EPD) completed its previously announced 2-1 stock split
    • It was EPD’s second stock split since going public in 1998, with the first occurring in 2002
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