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July 16, 2017

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Week Thoughts: Prime Conditions Prolong MLP Primacy

The MLP Index finished the week decisively above 300, up 9.9% from its recent (6/21) low, after a 1.9% week that included a furious late Friday ramp.  Oil prices rose each day of the week, including 4 straight 1%+ days to finish the week.  MLPs resisted rallying for most of the week, but eventually relented.

Just when sentiment was at its worst and catalysts seemed so far away, MLPs string together 3 straight positive weeks, beating the S&P 500 in each one.  But this week it took an optimal environment, including: big positive moves in commodity prices, no equity offerings and falling interest rates.

Sub-optimal conditions are likely to return, and MLPs will need some sector-specific and stock-specific reasons to keep the momentum.  As such, all eyes will turn to MLP earnings season in a few weeks, even if expectations are fairly low for 2Q results.  More important than results are the current conditions and insights in to 3Q results.
Reiteration of 2017 guidance and indications of in-flight 3Q volumes on conference calls may satiate the market, and “prime” the pump until 3Q results can confirm guidance from most MLPs calling for volume strength in 2H 2017…. But by then, the focus will have shifted to 2018 outlook, which will depend on oil prices… such a vicious cycle.
Winners & Losers
Beta worked this week.  CCLP and APLP, among the biggest losers last week, were among the biggest winners this week.  Propane MLPs were the worst performers.  Big YTD winners NBLX and WNRL were likely sources of funds.

YTD Leaderboard
CPLP continues to climb the leaderboard, and sits atop the list of MLPs that still exist (PTXP was acquired).  NBLX and WNRL declined slightly, losing ground as others gain steam.

The bottom 5 from last week all traded up, with the exception of TOO, which took over the bottom spot.

General Partners & Midstream Corporations
GPs and Corps outperformed the MLP Index this week.  Not a single one was negative.  SEMG and AROC went from worst to first, tracking oil prices higher.  TRGP bounced on commodity price strength and their non-deal roadshow this week.  TEGP had some resolution on the Ultra settlement.

News of the (MLP) World
After wading through all the press releases announcing conference call schedules for 2Q results (and re-schedules for EPD, stay tuned there), there was actually a surprising amount of news flow for a sleepy week in July.  Nothing earth shattering, but lots of small things on the periphery of the sector.

Capital Markets

  • ONEOK (OKE) announced public offering of $1.2bn of senior notes (press release)
    • $500mm of 4.00% notes due 2027
    • $700mm of 4.95% notes due 2047
  • Western Gas Partners (WES) filed $500mm common unit shelf (filing)
  • Cheniere Energy Partners (CQP) registered 199mm common units for holder Blackstone Group (filing)
    • Class B shares will convert on August 2 at which point Blackstone will own over 40% of CQP units
  • Private company Greenfield Midstream announced $300mm equity commitment from EnCap Flatrock Midstream (press release)
    • Greenfield is pursuing select acquisition opportunities across a range of midstream asset types
    • Management team includes former employees of DCP, EPD, NBLX, and Azure

Growth Projects / M&A

  • Williams Partners (WPZ) placed into service first phase of its Hillabee expansion project (press release)
    • The Hillabee expansion project will add a total of approximately 1,131,730 Dt/d of pipeline capacity to the Transco system by 2021
  • Enterprise Products (EPD) and Navigator Holdings announced agreement to jointly pursue ethylene marine export terminal on the Houston Ship Channel (press release)
    • The terminal would be connected to EPD’s high-capacity ethylene salt dome storage and ethylene pipeline system, which is currently under construction
    • Pending commercial contracts
  • Couche Tard, sponsor of CrossAmerica Partners (CAPL), announced acquisition of 522 Holiday Stationstores, Inc. convenience stores in the upper Midwest (press release)
    • Sites are in 10 states, concentrated in Minnesota and Wisconsin
    • Acquisition includes fuel terminal in Newport, Minnesota, which supplies 1/3rd of the stations


  • Valero Energy (VLO) and Plains All American (PAA) plan to challenge attempt to block proposed acquisition by Valero of certain Plains assets (press release)
    • The Northern District Court of California denied the CA Attorney General’s motion for a temporary restraining order seeking to block the proposed transaction
    • The AG filed its motion despite the fact that the FTC recently ended an extensive investigation of the same transaction, ultimately concluding that the transaction merited no regulatory action
  • Rockies Express Pipelines (REX) and its operator, Tallgrass Energy (TEP), announced receipt of $150mm cash settlement payment from Ultra Resources (press release)
    • Payment was in connection with the settlement of REX’s $303mm breach of contract claim
    • REX has distributed the proceeds to its partners
  • Alerian to be acquired by Hong Kong-based investment firm ZZ Capital for $582mm in cash and $230mm in earn outs (Reuters)
    • ZZ Capital is publicly-traded, but has a market capitalization of just $218mm
    • Alerian initiated a sales process in early 2015
    • Sector participants continue to await an update from Alerian on how to deal with the exodus of MLPs from the structure (KMP, OKS, NGLS, etc.) and the shrinking number of constituents in the flagship index
  • Energy Transfer (ETP) announced new distribution re-investment plan (press release)
    • Discount for DRIP program will range from 0% to 5%, but will start at 2.5%
  • CONSOL Energy (CNX), sponsor of CONE Midstream and CNX Coal Resources, announced filing of form 10 registration statement for spin-off of its coal business (press release)

Distribution Announcements

  • Slow distribution season so far, expect a ton of distribution announcements this week and next.

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