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May 19, 2013

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Week Thoughts: People Pass after MLPs Print Plenty of Paper

MLPs were down this week (-0.4%), despite continued strength in the broader stock market (S&P 500 was up 2.1%).  Of note, year over year, MLPs and the S&P 500 have produced almost exactly the same total return.  Gold was down big this week again.  Natural gas bounced above $4 again and NGL prices still suck.  Also, 10-year treasury rate crept up to 1.95%, but still ridiculously low.

Weekly Review_5-17-13

I was curious to get a better sense of what’s been driving the S&P 500 higher lately.  Below is a chart breaking down the total return of the S&P 500 segment ETFs and the MLP Index.  Retail is the only S&P 500 sector that’s outperforming the MLP Index so far this year, driven by companies like Whole Foods and Netflix.  Materials (Monsanto, Dow Chemical, Du Pont biggest holdings) is bringing up the rear, followed closely by Technology (Apple, Microsoft and Google).  Besides tech, seems like sectors doing relatively poorly are the traditionally defensive sectors.  MLPs (considered by many MLP investors to be conservative investments) stand out alongside traditionally cyclical sectors, but YTD MLP performance is distorted by what appears to be the mythical re-valuation of MLPs higher to reflect lower yields closer to REITs and Utilities that the sector’s been waiting for.   Either that or yield-starved exuberance that could lead to a sharp MLP selloff at some point….

AMZ and S&P Sectors

MLPs hit the capital markets hard this week, selling $1.5bn in MLP units (not including overallotment options or ATMs), and $1.1bn of that was primary issuance (CVRR’s $369mm deal was all secondary).  It was the biggest equity issuance week of the year  so far.  Performance of these deals in the market after pricing has been mixed, but not poor enough to discourage other MLPs from making their withdrawals from the capital markets in the next few weeks.  There was also a hefty portion of M&A announced this week, outlined below in the news section.
This week, the sector’s focus will be on the NAPTP conference, which (as mentioned in my conference hacks post from last year) is the biggest MLP conference of them all.  It will be in a new hotel, but same area of Connecticut.  I look forward to seeing old friends, meeting management teams of a few recent MLP IPOs, and getting everyone’s general mood.  The last three years, the conference happened right around the time of big negative moves in MLPs.  This year, I expect the mood will be more upbeat from investment professionals, and definitely from MLP management teams.  I also expect to hear some disparaging remarks from traditional MLPs concerning the rapid expansion of the MLP wrapper to other asset classes.
Before I get to the Winners & Losers and News…in case you were wondering, I got 2 out of 5 numbers and no powerball in tonight’s $600mm drawing (cash value was actually$376.9mm).  If it wasn’t me, I sincerely hope one of you readers has the winning numbers and might be interested in having some of that new wealth managed, because what better place to put your winnings in than the MLP space?  If nobody won tonight, we could be looking at nearly $1bn face value drawing next week, which would be BANANAS, especially in the neighborhood around me, which includes a few gas stations that are key deposit takers for this particular “Redneck Retirement Plan” (as my dad, an avid lottery player, was fond of calling it).  Even understanding the math and knowing that some people refer to Lotteries as a “Stupid Tax”, I play the lottery occasionally for the entertainment value it provides my imagination, and can justify it easily as someone who doesn’t drink because it costs less than a drink to play.  What’s your excuse?
Winners & Losers
Small cap MLPs led the winners this week.  SMLP was the best performing among them, after raising guidance on Monday with its earnings release and especially Friday after SMLP announced that its GP commenced operations of the Polar Crude Oil and Water Gathering System, which is a future drop down for SMLP.  LGP’s earnings release and 3.4% distribution increase led to its big move this week.  On the downside, only 1 of the 4 MLPs  (TCP) that priced equity offerings this week was down, showing just how open the capital markets are to MLPs.  Expect that to lead to more equity offerings.  GSJK made it into the bottom 5 for the second straight week.


EVEP continues to drop and is getting close to the cellar, but for now OXF still holds the bottom spot for now.  EVEP was also the only MLP in the bottom 5 for the week that’s also in the bottom 5 for the year.  The order and makeup of the bottom 5 stayed the same since last week.  SMLP shot to the top of the winners year to date this week and simultaneously holds both the top spot for the week and year to date.  


Taking a broader view, GPs still lead everything year to date, and variable distribution MLPs are under-performing the rest of the MLP sector.  Generally speaking, as long as you had more money in equities than gold at the beginning of the year, you are doing well on paper.


News of the (MLP) World 


Interesting Articles

  • Philip Trinder (MLP Protocol) did a nice piece on MLPs and interest rates in reaction to a comment by Jeff Gundlach (Seeking Alpha)
  • WSJ with a sotry on the Freeport terminal receiving approval, LNG and natural gas prices, and both sides of the natural gas export argument (WSJ Article)


  • TC Pipelines (TCP) prices offering of 7.7mm common units at $43.85/unit, raising $337.7mm in gross proceeds
  • Rose Rock Midstream (RRMS) files S-3 to register up to $500mm in primary debt or equity and 12.5mm common units
  • CVR Refining (CVRR) prices offering of 12.0mm common units at $30.75/unit, raising $369.0mm in gross proceeds to be used to redeem common units owned by its GP
  • Western Gas (WES) prices offering of 6.1mm common units at $61.18/unit, raising $373.2mm in gross proceeds
  • Suburban Propane (SPH) prices offering of 2.7mm common units at $48.16/unit, raising $130.0mm in gross proceeds
  • Tallgrass Energy (TEP) prices IPO of 13.05mm units at $21.50/unit (final prospectus)
    • Priced at 5.35% yield, total gross proceeds of $280.6mm
    • Priced below the filing range of $22-$24 per unit, opened at $22.00, closed flat at $21.50


  • StoneMor (STON) prices private placement of $175mm of 7.875% senior notes due 2021 at 97.832% to yield 8.25%

M&A / Growth Projects

  • Tesoro Logistics (TLLP) announces $640mm acquisition of first portion of logistics assets associated with BP Southern California Refining and Marketing Business that Tesoro is acquiring (press release)
    • TLLP to acquire the first portion of logistics assets associated with the BP Southern California Refining and Marketing business (Carson) acquisition by Tesoro’s subsidiary, Tesoro Refining & Marketing Company LLC
    • Acquisition will close concurrent with Tesoro’s closing of the Carson acquisition, scheduled for 2Q 2013
    • TLLP expects $60-$65mm in estimated annual EBITDA from these assets
    • Assets include:
      • Six marketing and storage terminal facilities with a total combined throughput capacity of 224,800 bbls/day
      • Approximately 6.4mm bbls of storage capacity
  • TC PipeLines, LP (TCP) announces acquisition of additional 45% interest in Gas Transmission Northwest LLC and Bison Pipeline LLC from TransCanada for $1.05bn (press release)
    • TCP to acquire an additional 45% interest in each of Gas Transmission Northwest LLC (GTN) and Bison Pipeline LLC from GP Transcanada
    • Expected to be immediately accretive to TCP’s cash flow and earnings (TCP to increase distribution 3.8% next quarter)
    • TCP to assume $146mm of GTN’s debt, leaving cash of $904mm, which will be funded with debt and equity, including proceeds from $337.7mm equity offering priced on 5/16
  • Hi-Crush (HCLP) announces acquisition of frac sand distributor D&I Silica, LLC for $125mm in cash and equity (press release)
    • HCLP to acquire independent frac sand distributor D&I Silica, LLC in a transaction to close in 2Q 2013
    • Will expand HCLP’s business into transportation, marketing and distribution of Northern White frac sand
    • $125mm purchase price includes $95mm in cash and 1.579mm units priced at $19/unit
    • D&I has 98 employees and operates through an extensive logistics network of rail-served origin and destination terminals in the Midwest near supply sources and throughout Pennsylvania, Ohio and New York
  • Mid-Con Energy (MCEP) announces acquisition of additional interests in existing Mid-Con Energy waterfloods for $28.1mm (press release)


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