MLPs were mixed this week, but outperformed the broader stock market and utilities. The Alerian MLP Index (AMZ) capped the worst January ever recorded by the MLP index with a 1.5% decline (including distributions) this week. It wasn’t all bad, as strong price performance by upstream MLPs helped the AMZE post a positive week.
The S&P 500 finished down 2.8% for the week, while utilities finished down 1.8% even with a significantly lower yield on U.S. 10 year treasuries. Oil prices finished 6.7% higher this week, including an 8.3% rally on Friday. Natural gas spot price continued to slide, down 9.5% this week to a new 52-week low on general oversupply.
The MLP Index has never before had 5 straight negative months, but that’s where we are now, with the index having declined each month and 16.3% overall since the end of August. MLPs finished down for the month of January for the first time since 2008, breaking a streak of 6 consecutive years. 2 of the other 3 times when January was negative, the MLP Index was negative for the full year (2002 and 2008).
MLPs are overdue for a bounce that sustains itself long enough for a positive month, but that’s been elusive in a steadily declining commodity price environment. Since the OPEC meeting in November, however, the individual MLP news flow has been relatively light.
Over the next few weeks, we will be overwhelmed by MLP earnings releases and 2015 guidance releases that has a chance to highlight the resiliency of MLP cash flows in the face of falling commodity prices. We have started to see some differentiation creep back into the MLP sector as distribution announcements and earnings releases have started rolling in.
Winners & Losers
Upstream MLPs bounced back in a big way this week, well before oil prices snapped back on Friday, and they occupy 4 of the top 5 spots. VLP made it two straight weeks in the top 5 after its sponsor announced a faster drop down pace, which apparently was news to the market. After announcing its role as the white knight to RGP’s distressed valuation, ETP’s price declined. Another large-cap MLP DPM made the bottom five on deteriorating processing economics for its sponsor DCP Midstream, LLC, which carries the commodity price exposure for DPM. TOO made it two straight weeks in the bottom five.
DPM’s poor week lands it on the bottom five YTD list this week. Rallies in upstream (see above) helped most upstream MLP escape the bottom five (EVEP was left behind). SDLP was flat week over week, but drops into the bottom five YTD by standing still. On the upside, FISH continued higher and jumped from 5th place to 2nd place.
News of the (MLP) World
We got some more big M&A this week, but it was more of a cost of capital clean-up trade than strategic M&A activity. We did get another positive indicator in the face of the bleak commodity price environment when the first MLP IPO of the year launched. The dark side of lower NGL prices showed itself this week as well, as DPM’s sponsor announced a 20% workforce reduction.
M&A / Growth Projects