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April 7, 2013

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Week Thoughts: Worst Week of 2013 for MLPs

MLPs under-performed this week with a 2.2% decline, giving back all of the last 2 weeks worth of gains.  In 2013 so far, only 4 out of 14 weeks have been down, and this was the worst of the 4 down weeks of the year.  Weak unemployment claims, then weak employment data sunk the broader market.  Oil, propane and ethane prices plunged as well, contributing to the out-sized decline for MLPs vs. the market.  Natural gas was the bright spot, with futures up 3.0% this week and above $4.00 for the second straight week.

The 10-year treasury interest rate closed the week at lows for the year, slightly below 1.7%, which puts the MLP Index yield spread to the 10-year at more than 400 basis points.   An EPA announcement regarding sulfur standards for refineries this week sent refineries into a tailspin, dragging related entities (in some cases their pipeline subsidiaries) down with them.  The MLP sell-off was overdue, and a little more short term MLP weakness would probably be healthy for the MLP space at this point.

Weekly Review_4-5-13

For the year, MLPs are still way out in front, slightly behind GPs, which have produced 18.4% total returns on average.  Variable distribution MLPs were hit hard this week as both fertilizer production and crude oil refining MLPs (previously white hot sectors) were down big, including ALDW down 16.6%, NTI down 10.9%, and RNF down 10.7%.


Winners & Losers
NKA was the big outlier for the week, up 20.4% after management announced an equity restructuring to replace subordinated units and original IDRs with a new set of IDRs that are entitled to receive 48% of any quarterly distributions by NKA after common unitholders have received the full minimum quarterly distribution (still $0.35/unit).  XTEX was another big winner, probably not the result of Guzman & Company initiating XTEX at Neutral on Monday.
MPLX and DKL found themselves in the bottom 5 this week, likely a knock-on effect of weakness in parent refinery players after the sulfur requirement announcement.  If implemented, the new sulfur standards would cost some refineries a substantial investment to comply, and they might try to pass that along to consumers at the pump, which might reduce demand and therefore volumes in pipelines owned by the refined products MLPs.  So there is some fundamental impact on MLPs, but probably not enough to warrant such losses.


The top 5 for the year was shaken up this week, as BKEP, NKA and XTEX popped into the top 5, displacing BPL, OILT, and DKL.  SMLP and GLP remained in the top 5, but GLP had a down week.  There are still only 4 MLPs with negative total returns in the sector this year (not counting variable MLPs), and there were no changes tot he bottom 5 constituents and their order.


Don’t know what to expect this week.  It could be a quick rebound, which would signify large capital had been waiting for even the slightest downdraft to plow more funds into MLPs.  It could be a flat week, or one that sees MLPs trade with the market in whichever direction it goes.  Or we could see more pain, leading to a desperate search for the reasons for the selloff, and to many emails to me regarding my thoughts on MLPs being taxed, or distributions being cut…
Longer term, I am very pleased with the prospects of the MLPs I own for myself and for clients, and expect them to produce returns that exceed the market.  There is not much else to say beyond that (especially after another crazy Saturday filled with soccer practice and birthday parties for kids I’ve never met), so good luck this week and please sign up to receive research at, becauseI am expecting to initiate on another MLP this week.
News of the (MLP) World

News of the World


  • Energy Transfer (ETP) prices public offering of 12.0mm common units at $48.05/unit, raising $576.6mm in gross proceeds (press release)
    • ETP to raise $576.6mm in gross proceeds from the offering, net of which will be used to reduce borrowings
    • Overnight offering, priced at 4.6% discount to prior close
    • ETP units traded up 1.1% from offer price in the session after pricing
  • Spectra Energy Partners (SEP) prices public offering of 4.5mm common units at $37.25/unit, raising $167.6mm in gross proceeds (press release)
    • SEP prices offering at $37.25/unit, raising $167.6mm in gross proceeds, net of which will be used for capital expenditures and acquisitions
    • Overnight offering, priced at 4.0% discount to prior close
    • SEP units traded down 0.5% from offer price in the session after pricing
  • Williams Partners (WPZ) files S-3 to sell up to $600mm worth of  common units (filing)
  • KNOT Offshore Partners (KNOP) launches IPO of 7.45mm common units, which would raise $149.0mm at the midpoint price of $20.00/unit (7.50% yield).  Expected to price April 9 after the market close (latest F-1)


  • Rentech Nitrogen (RNF) launches private offering of $320mm of second lien senior secured notes due 2021 (press release)

M&A / Growth Projects

  • Ferrellgas (FGP) announces acquisition of Western Petroleum, a Utah-based propane company with residential and industrial customers
  • New Source Energy (NSLP) announces acquisition of 3.9 MMBoe of oil and natural gas reserves, funded with 1.4mm common units of equity issued to New Source Energy Corp.

Corporate Actions

  • Niska Gas Storage (NKA) announces equity restructuring and elimination of subordinated units, replaced by a new IDR structure (press release)
  • New Source Energy (NSLP) announces plans to increase quarterly distribution 4.8% to $0.55/unit in 2Q 2013 and another 4.5% to $0.575/unit for 3Q 2013
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