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March 29, 2015

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Week Thoughts: Safety in MLPs

MLPs finished positive for the second straight week, the first time in 2015 MLPs have been positive for two consecutive weeks.  Oil prices increased, helping the Alerian MLP Index (AMZ) finish up 0.3% this week.  Large capitalization MLPs traded better on average than smaller MLPs this week.  MLPs outperformed both utilities (-2.5%) and the S&P 500 (-2.2%) by a wide margin, an indication of how energy stocks in general are being driven by oil over all other macro forces (absent stock-specific news).  This week it was to the benefit of MLPs, and as oil prices continue to recover over time it should be a tailwind for MLPs.
Weekly Review_3-27-15
Oil price increased 5.6% in the futures market week over week, a second consecutive positive week.  Oil prices rallied Thursday on news of the Saudi-led middle-eastern contingent of countries launching air strikes against rebels in Yemen, increasing tensions among major countries in the Middle East (Saudi Arabia and Iran).  The US dollar also showed continued weakness, helping oil prices early in the week. Oil storage continued to build in the U.S., but the focus shifted to geo-politics this week.
It was refreshing to see MLPs play the defensive role this week, but it still feels choppy with question marks on oil storage, equity issuance and growth question marks for some MLPs.  East Coast is on Spring Break this week, so I’ll keep it short.
Winners & Losers
Two shipping MLPs led the way this week, along with small cap value names CCLP and USDP.  On the downside, each of the bottom five comes from a different MLP subsector, so hard to read much into that.  In general, MLPs have traded pretty erratically with individual names trading in opposite directions of their peers on different days.
NMM bounced from worst last week to first this week.  FELP did the reverse, falling back after a strong week last week. NSLP made it a second straight week near the bottom of the sector.
CCLP leads the way so far this year, with fellow compression MLP USAC in the top 5 as well.  Every MLP in the top 5 besides CCLP declined this week.  Upstream MLPs dominate the bottom 5, with 3 E&P MLPs and 1 coal MLP in a tight bunch near the bottom.
News of the (MLP) World
Much more action in the MLP space this week, including private equity alliances, small pipeline JVs, drop downs, and debt deals.  Despite all the action, we haven’t yet seen the big M&A come through, at least not since the Hiland deal and the Energy Transfer clean up merger with Regency.  PAA, KMI, ETE and others have been vocal about acquisitions, maybe next week some of those deals surface.  IPOs are coming as well.

  • EnLink Midstream (ENLK) priced secondary offering of 22.8mm common units owned by Devon Energy at $25.71/unit, raising $586.2mm in gross proceeds for Devon (press release)
    • Overnight offering, priced at 4.5% discount to prior closing price
    • Traded very poorly in the next session, down an additional 4.7% from pricing, or 9.0% overall from prior closing price
  • Global Partners (GLP) priced secondary offering of 1.96mm common units at $36.10/unit, raising $70.6mm in gross proceeds for selling unitholders (press release)
    • GLP received no proceeds
    • Selling unitholders were owners of AE Holdings Corp.
    • Overnight offering, priced at 5.6% discount to prior closing price, and traded up 1.1% in the next session
  • MPLX filed S-3 to register up to $1.5bn worth of common units (filing)
  • Spectra Energy Partners (SEP) filed equity distribution agreement to sell up to $500mm in equity at the market (filing)


  • Calumet Specialty Products (CLMT) priced public offering of $325mm of 7.75% senior notes at 99.257% of par (press release)
  • Sunoco LP (SUN) priced public offering of $800mm of 6.375% senior notes due 2023 (press release)

M&A / Growth Projects

  • Sunoco LP (SUN) announced acquisition of interest in fuel distribution business from Energy Transfer (ETP) for $816mm (press release)
    • SUN to acquire 31.6% equity interest in Sunoco, LLC, which distributes ~5.3bn gallons per year of motor fuel across 26 states
  • EnLink Midstream (ENLK) announced acquisition of Victoria Express Pipeline and other Eagle Ford assets from Devon Energy for $171mm today, plus $30-40mm in planned development capex (press release)
    • Direct acquisition from DVN, as opposed to a drop down from ENLC
    • Purchase price represents 10x EBITDA today, 6-8x beyond 2016 including development spend
  • Semgroup Corp (SEMG) announced $500mm Maurepas Pipelines project serving refineries in Coastal Louisiana (press release)
    • SEMG to build 3 pipelines (1 oil and 2 intermediates) between refineries operated by Motiva
    • The project is supported by long-term transportation agreements with Motiva and is expected to be in-service in 4Q 2016
    • SEMG expects to develop the pipeline at SEMG and drop down the assets to RRMS at some point in the future
  • Linn Energy (LINE) announced $1bn equity commitment from Quantum Energy to form strategic acquisition alliance (press release)
    • Quantum were the original backers of LINE, forming the partnership with Mike Linn in 2003, before taking it public in 2006
  • Delek Logistics (DKL) and Plains All American announced JV for development of Caddo Pipeline (press release)
    • Total pipeline cost: $100mm ($50mm each)
    • Joint venture ownership: 50% DKL and 50% PAA, but PAA will operate the pipeline
    • Pipeline will be an 80-mile oil pipeline from East Texas to refineries in Louisiana withinitial capacity of 80,000 barrels per day
    • DKL’s parent company, Delek US (DK – publicly-traded refinery corporation), will be an anchor shipper on the pipeline
  • Delek Logistics (DKL) announced JV with Rangeland for pipeline in West Texas
    • Total pipeline cost: $125mm ($41.7mm net to DKL)
    • JV ownership: 33% DKL, 67% Rangeland, but Rangeland will operate the pipeline
    • RIO pipeline will consist of two terminal facilities and a 12-inch, 107-mile pipeline originating in the Delaware Basin and terminating in Midland, TX with 55,000 barrels per day of initial capacity
    • DKL’s parent company, Delek US (DK) will be an anchor shipper on the pipeline


  • CrossAmerica Partners (CAPL) announced retirement of founder and CEO Joe Topper (press release)
    • Topper will remain in charge until 9/30 to ensure a smooth transition
    • CAPL traded down sharply Friday on the news
    • Incoming CEO Jeremy Bergeron (CST SVP of Integration and Development currently) was quoted in the press release saying “my family and I are thrilled with the prospect of joining the Allentown (PA) community.” 
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