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October 15, 2011

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Week Thoughts: Tide Lifts MLPs, Apparently It's All Good

The lack of bad news this week seemed to be enough to spark a rally for the markets.   The MLP Index finished the week up 5.2%, and is up 7.8% in the last 8 trading days.  But while the S&P 500 and Dow both closed the week at their highest levels since August 3rd, MLPs are still below their close on September 20th at 358.50.  So, since September 20th, the MLP Index dropped 8.3% in 10 days, then shot up 7.8% in the following 8 trading days.

Its been a crazy 3 weeks, but it appears as though that October 4th close was at least a temporary bottom.  Only time will tell if the bounce in everything (including MLPs) has legs.   It was interesting to watch the market melt up happen on a week when Occupy Wall Street really got traction, stocks being bid up from buildings surrounded by protestors (ok, maybe not surrounded).

Aside from no negative global macro news this week, there were a series of positive MLP announcements this week, including M&A deals, distribution announcements, and positive analyst reports.  These positive announcements seemed to convince investors that owning MLPs heading into earnings and distribution season was a good idea and/or being short MLPs heading into distribution and earnings season was a bad idea.   Also clearly a factor was the market melt up, along with the strong recovery in oil prices.  So, MLPs were along for the ride this week to some extent, but they continue to outperform the market YTD and since late April highs.
Only 5 (out of 65 I follow) MLPs had negative performance this week.  GLP was by far the biggest loser this week, down 5.6%.  The next closest was $CHKM down 1.8%, but $CHKM launched and priced an equity deal this week, so they have an excuse.  See below for the biggest winners, led by $NMM.  Two coal MLPs, $NRP and $OXF, round out the top 5.  Actually 4 out of 5 MLPs were up more than 10% this week, and $ARLP was up more than 9%.

I’m not sure what will turn this around for GLP other than a blowout surprise quarter somehow, a significant increase in distribution coverage, or a distribution increase.  There are only 5 research analysts that cover GLP, so when they stop cheer-leading for you (which they have), investors tend to stop paying attention to you.  There are rumblings about a tight market for heating oil this winter which may help GLP, and if gasoline prices continue to trend lower in the short term, that could help drive volume, but generally things are not great for Global.  I guess the most positive thing you can say about them is that so far management has not pre-announced weaker earnings (yet) this quarter like they did last quarter.  See below for GLP’s year to date chart, probably the ugliest in the sector.  GLP is down 49% (46% total return) since its peak in January, and down 44% (41% total return) since the beginning of the year.


  • $BWP struck a 15-year gas gathering deal with $SWN as part of BWP’s new field services initiative.  BWP will spend $90 million to build the system (press release).
  • $HEP announced acquisition of certain Kansas and Wyoming assets from parent $HFC for $340 million (press release).
  • $TNG announced that its JV with Marubeni Corp will spend $1.4 billion to acquire ownership interests in eight LNG carriers (press release).
  • It came out this week that Williams received permission from Southern Union to speak with $ETE about potentially purchasing some of the Southern Union assets, but after a month of discussions, ETE ultimately said no thanks.  So, it appears that Williams is not raising its bid and ETE will go ahead with the acquisition of Southern Union (Wall Street Journal Article).

Distribution Announcements:

  • $CPNO held distribution flat
  • $WES raised distribution 3.7% quarter over quarter
  • $GEL raised distribution 3%
  • $EPD raised distribution 1.2%
  • $TRGP raised distribution 6%
  • $NGLS raised distribution 2%
  • $CLMT raised distrinbution 1.0%
  • $PNG raised distribution 3.6%
  • $PAA raised distribution 1.3%
Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only. Long GLP.
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