MLPs declined 1.4% including distributions this week, despite flat oil prices near $50/bbl, a flat broader market and still low interest rates. The price index dropped to its lowest level since late June, reversing the slight bounce in July. The equal weight version of the MLP Index underperformed by 50 basis points this week, indicative of small cap weakness.
“Unasked for Dicta”
This distribution/earnings season it feels like more investors than usual were waiting on one more distribution before selling MLPs, unless there was a sector catalyst to give them a reason to hang on. That catalyst did not show up. Earnings have been mixed to weaker than expected, equity needs have not been reduced enough (ETP Rover sell-down notwithstanding), and producer earnings and higher gas-oil ratio discussions have spooked interest in energy broadly.
Early in the week, ETP’s announcement of $1.57bn capital infusion and private equity value recognition failed to spark broader interest in the sector. Rather it led to rotation from other large cap diversified MLPs like WPZ and OKE into ETP. Fund flows are being re-circulated rather than expanding overall.
Also, FERC commissioners were confirmed by the senate on Thursday, solidifying a quorum for the first time since February. This is a clear positive for MLPs that are developing natural gas pipelines, particularly those seeking to add takeaway capacity for Northeast natural gas, but are waiting on approvals. That news also did not drive broad-based interest in midstream stocks, at least not the first day post quorum.
With the sector on firmer footing than it has been in recent years, the capital recycling is not a “re-arranging the deck chairs on the Titanic” situation, but the overall dearth of fund flows will likely drive consolidation longer term as MLPs able to access capital markets grind away those with high cost of capital. In the absence of consolidation, MLPs will need to be creative or at least more disciplined with regards to retaining cash flow to fund growth aspirations. They also probably can’t support IDRs.
The quote in the header above was an off-the-cuff phrase coined by TEP CEO Dave Dehaemers on his earnings call this week. It could also describe this blog’s weekly content and (more derogatorily) what I am currently hearing while on my annual trip to visit relatives in Texas.
Poll Question: FERC Winner
Sorry, there are no polls available at the moment.
Monday was the end to another month, and MLPs were positive for the first time since this February, ending the longest streak of negative months (4) since last February. MLPs have already erased July gains in the first 4 days of August.
August has been the most consistently negative month for the last 8 years, with 6 negative months, including 2 straight years. Sentiment can turn positive on a dime, but so far August seems to be par for the course.
Winners & Losers
Positive results from CEQP, PBFX and ENBL landed them at the top of the sector this week. Weak results from NGL and further reduced guidance sent NGL into a 19% tailspin. Compression MLPs dominated the bottom 5, but the one that issued equity this week (APLP) was oddly the best performer of the three.
Year to Date Leaderboard
On the year to date leaderboard, no constituent changes across the board, just some jockeying for positioning. All 5 of the bottom 5 are now down more than 30% each for the year so far, sad!
General Partners & Midstream Corporations
GPs and midstream corporations underperformed the MLP Index this week. Just one of the group, AHGP, was positive after last Friday’s IDR elimination transaction announcement and distribution increase. ETE was a surprise negative performer despite the announcement of a large capital infusion by Blackstone into ETP. 3 of the bottom five reported results this week (TEGP, OKE, and AROC), while the other two (PAGP and SEMG) are oil infrastructure focused and generally higher beta.
PAGP, OKE and SEMG were up big last week, and reversed course this week.
News of the (MLP) World
Very active news week, but no NGL pipeline JV as discussed in the poll question last week. More than 66% of you believe TRGP and EPD will combine their pipeline projects, but it definitely did not happen this week. Equity markets were active for the first time in a while as APLP braved the equity markets with a small offering at a wide discount. Others filed to issue equity later or over time.
Growth Projects / M&A
Below are the distribution announcements for the week. I missed PBFX’s Thursday distribution announcement in the chart below. At this point, almost all MLPs have announced distributions. There remains a wide range of haves and have nots when it comes to distribution growth ability.