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January 19, 2014

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Week Thoughts: NGL Prices Vertical, MLPs Horizontal

MLPs were basically flat this week, but both the Alerian MLP Index and the Alerian Equal Weight MLP Index beat the S&P 500, which was down slightly.  Commodity price strength (see below) and slightly lower interest rates did not translate into much immediate MLP price strength.

Weekly MLP Review_1-17-14

Commodity prices were universally strong this week:

  • Crude oil prices rose 1.5%, but remains 4.5% lower than year end
  • Natural gas prices bounced back, +6.1% this week
    • Record natural gas storage withdrawal of 287 bcf
  • Ethane was up 22.8%, which seems like a lot, but is really just $0.06/gallon
  • Propane strength continues, +7.6% this week, makes it +70.6% year over year
    • 52-week highs for both propane and ethane
    • Propane closed the week at its highest price in more than two years (since 1/3/12)

MLP earnings season kicked off with the Kinder Morgan family of companies reporting results on Wednesday that were largely in-line with analysts’ expectations.  The earnings call included some table pounding by CEO Richard Kinder on behalf of what he views as a clearly undervalued Kinder Morgan Inc (KMI), see this WSJ.com blog post about the call.  There was less table pounding around EPB and KMP…  In any event, Kinder will be hosting an analyst day on January 29th to unveil its full year 2014 budget and long term distribution expectations for its various entities.
Winners & Losers
Brand new MLP Cypress (CELP) had a nice pop, rising each of its first 3 trading day to finish the week up 12.3%. On the downside, DKL led the sector lower (-6.9%) after Barlcays downgraded it from overweight to equal-weight. APU was under some selling pressure from ETP’s underwritten offering of APU units owned by ETP, but not weak enough for APU to land on the bottom five chart.

Top5Bottom5_1-17-14

For the year so far, CELP’s early strength catapults it right near the top of the list, alongside CLMT.  DKL dropped from the second spot to out of the top five, but is still up for the year. RNO and GLP continue to trade well early in 2014. In the top five are 3 MLPs with less than $500mm market caps and the average market cap of the top 5 is less than $1.0bn.

Top5Bottom5_1-17-14_YTD

It might be tempting to say that because the top 5 are small cap MLPs, it means small cap MLPs will outperform in 2014 or that you should buy more of them vs. larger MLPs. The top five or bottom five in any given year are typically the more volatile MLPs or are ones that have had a transforming transaction, neither of which are necessarily attractive traits in an MLP.  It is interesting and worth noting, however, that the top five is loaded with small caps, especially when the bottom 5 is loaded with MLPs that have more than $4.0bn market cap (like EPB, ETP and CMLP).
Poll Question
If you haven’t already, check out the 2014 Over Unders post from earlier this week and make sure your vote is counted.  I’ll tally those votes and summarize the results next week.  I will be implementing polls on a more regular basis going forward, some tied to specific weekly transactions, so hopefully that will generate some interesting results.  This week’s poll question is below. Sorry, there are no polls available at the moment.  
News of the (MLP) World

News-of-the-World

Equity

  • Amerigas (APU) announces that Energy Transfer (ETP) priced an underwritten public secondary offering of 8.0mm APU units at $42.73/unit, raising $341.8mm in gross proceeds for the selling unitholder (ETP) (press release)
    • Overnight offering, priced at 4.3% discount to prior close
    • Traded down 1.1% in the next session
  • Cypress Energy (CELP) prices initial public offering of 3.75mm common units at $20.00/unit, raising $75mm in gross proceeds (final prospectus)
    • Priced at the midpoint of the pricing range, which represents a 7.75% IPO yield
    • Opened trading at $20.00, reached a high of $21.74 (+8.7% from IPO price), before closing at $21.30 (+6.5%) on its first trading day
    • CELP is a services MLP that provides saltwater disposal wells and operates a pipeline inspection business
  • GasLog Ltd (GLOG) announces its Board of Directors has authorized the company to file a draft registration statement for an IPO of an MLP that would own certain of GLOG’s LNG carriers with multi-year charters (press release)

Other

  • Crosstex (XTEX / XTXI) and Devon (DVN) announce combined mistream business to be named EnLink Midstream (press release)
  • Cheniere Energy (LNG / CQP) announces CFO change (press release)
    • CFO Davis Thames ceased to serve on 1/14, replaced by Michael Wortley (internal promotion from prior role of VP, Strategy & Risk)
  • Ferrellgas (FGP) announces diversification initiative (away from propane), announces new SVP of Strategic Development to lead it (press release)

Distributions

  • Increases:
    • TRGP: $0.6075, +6.6% quarter over quarter
    • TEP: $0.315, +5.9%
    • HCLP: $0.51, +4.1%
    • TOO: $0.5384, +2.5%
    • TGP: $0.6918, +2.5%
    • NGLS: $0.7475, +2.0%
    • EPD: $0.70, +1.4%
    • KMP: $1.36, +0.7%
    • OKS: $0.73, +0.7%
    • LRE: $0.49, +0.5%
  • Flat
    • EPB (streak of 22 straight quarterly distribution increases officially ends), KMI, TLP, WPT, OCIR
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