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January 22, 2017

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Week Thoughts: Wait for It

MLPs and most everything were flattish this week, with the AMZ up 0.1%, although the equal weight Alerian MLP Index was better. Interest rates rose a bit, but so far in 2017 the initial post-election rate spike hasn’t followed through with just 2 basis points increase in the 10-year U.S. Treasury rate.  There was volatility in natural gas on warmer weather that bled over into much weaker ethane.
Weekly_1-20-17
The market seemed to be in wait and see mode this week.  President Business took office Friday, and now we wait. Wait to see what he does next.  Wait for evidence of OPEC compliance.  Wait for KMI analyst day, for 4Q earnings, for producers and MLPs to issue guidance, for tax reform, and for Taco Tuesday.
Taco Tuesday
Poll Question: Thanks, Obama!
On the way out, Obama’s administration threw up a final roadblock to thwart the completion of the Dakota Access Pipeline (see news section for more details).  Team Trump is expected to insert itself into the DAPL process at some point, but there are now questions as to how quickly they can make a differnece if a legal process has been set in motion that must work itself through.
Meanwhile, on the Rover pipeline, time is running short for permits that will allow for tree clearing before the window on 2017 in-service closes.  I’m interested in your opinion on what you think happens with these projects.
Sorry, there are no polls available at the moment.
Winners & Losers
NBLX led the sector on the heels of its sponsor (NBL) acquiring more acreage in the Permian that’s apparently mostly undedicated from a midstream perspective.  WLKP rallied on affirmation of its tax status after more than a year of suspense and uncertainty.  SXCP was the surprise loser of the IRS MLP regulations.  CPLP’s distribution growth announcement was well-received, and the Teekay entities had another solid week.
Top5Bottom5_1-20-17
Top5Bottom5_1-20-17_chart
YTD Leaderboard
January isn’t even over yet and already more than 5 MLPs have 15%+ returns, including NBLX, FGP and the Teekay MLPs.  PAA is the only big cap MLP among the winners and losers, currently sitting at third worst return for the year so far.
Top5Bottom5_1-20-17_YTD
Top5Bottom5_1-20-17_YTD_chart
General Partners & Corporations
TRGP led all GPs and midstream corporations this week, presumably on strong propane prices and Permian M&A enthusiasm.  ETE made it two straight weeks near the bottom of the group, on waning patience for DAPL as roadblocks continue to pop up.  Gas prices probably weighed on AROC and AHGP.
Top5Bottom5GPs_1-20-172
Top5Bottom5GPs_1-20-17_chart
News of the (MLP) World
PAA’s small expansion is an early sign of eventual pipeline constraints that may lead to further development opportunities for Permian oil takeaway.  That topic is likely to dominate PAA’s earnings call in a few weeks. There weren’t many other transactions this week. Most of the action apparently occurred in and around court rooms, with a settlement for Rockies Express, more DAPL challenges, and another upstream MLP bankruptcy.
News-of-the-World
Capital Markets

  • Viper Energy (VNOM) priced public offering of 8.5mm shares at $15.50/units, raising $131.8mn (press release)
    • Overnight offering, priced at a 7.2% discount and traded up 1.9% from pricing in the following session
    • Offering was upsized from 7.0mm units originally offered

Growth Projects / M&A

  • Plains All American (PAA) announced it will expand capacity on Cactus Pipeline by 60 Mbpd to 390 Mbpd by 3Q17 (press release)
    • The expansion allows PAA to move production from the Permian to Corpus Christi
  • Valero Energy Partners (VLP) acquires 40% of Red River pipeline for $70mm from Plains All American (PAA) (press release)
    • The purchase includes interest in a 138-mile oil pipeline with 150,000 bpd of capacity and two 150,000 shell barrel capacity tanks
    • VLP sponsor Valero Energy Corp (VLO) will support the acquisition with a new 10-year throughput agreement with VLP that includes a minimum volume commitment
    • Funded with cash on hand
  • Sunoco LP (SUN) announced that it is exploring strategic alternatives for more than 100 real estate assets (press release)
    • The properties will be sold through a sealed-bid in a ‘buy one, some, or all’ format
  • TransCanada (TRP) received FERC approval to construct Leach XPress and Rayne XPress projects (press release)
    • Leach will transport 1.5 Bcf/d of natural gas from the Marcellus and Utica
    • Rayne will involve two new compressor stations along TRP’s existing Columbia Gulf system creating 1.0 Bcf/d of capacity

Other

  • Tallgrass Energy (TEP) and Rockies Express Pipeline (REX) announced a settlement for a $303mm breach of contract claim against Ultra Resources (press release)
    • The settlement requires Ultra to pay REX $150mm six months after Ultra emerges from bankruptcy, but no later than October 2017
    • Ultra also agreed to a new seven year transportation agreement with REX beginning 12/1/19 at $0.37/McF or $26.8mm annually
  • Energy Transfer’s (ETP) request to block the Army Corps’ environmental impact statement (EIS) on DAPL was denied by US District Judge (Chron.com)
    • The Army Corps filed a notice of intent to prepare an EIS for the pipeline’s crossing of the Missouri River under the Lake Oahe reservoir on 1/18/17
    • ETP requested the notice to be withdrawn, but was ultimately rejected
    • As discussed above, this appears to be a final attempt by the Obama administration to delay the completion of the pipeline and continue the cash burn of its owners
    • It’s unclear how quickly POTUS Trump will address the pipeline delay and what he can do to cut through this latest delay
  • IRS final regulations were announced (read here), with positive implications for Westlake Chemical Partners (WLKP) and negative implications for SunCoke Energy Partners (SXCP), which played out in trading Friday
  • Memorial Production (MEMP) filed for bankruptcy protection via Chapter 11 (press release)
    • MEMP expects to eliminate more than $1.3bn of debt from the balance sheet

Distribution Announcements
Distribution announcements_1-20-17

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