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August 12, 2012

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Winners & Losers: MLPs Shrug Off Record Debt and Equity Issuance

MLPs were up 0.6% this week, trailing the broader stock market, but holding up well given the $1.3bn in MLP equity offerings that priced this week (not counting the $2.0bn secondary sale by KMI investors).  That $1.3bn in equity priced this week was the most in a single week so far this year.  Also, this week there was $4.5 billion of public debt offerings priced, the most ever in a single week in the MLP space.  All told, including the bought deal for KMI shares sold by private equity investors, there was $7.8 billion of capital markets activity this week.
Broader market strength and oil prices probably helped buoy prices of MLPs in the face of equity offerings and a Friday drop in natural gas prices.  Variable distribution MLPs popped this week, as they have been apt to do all year.  But this week it wasn’t just the fertilizer MLPs, variable distribution MLPs were led this week by recent IPO Northern Tier Energy (NTI), which rose 11.7% for the week, and is 26% since its IPO on July 25th.  not up time in addition to the usual fertilizer MLP strength (RNF was up 6.8%).

Despite the relatively small move in the MLP Index this week, individual MLP moves varied wildly.  NRP showed some signs of life, bouncing 15.5% this week after closing last Friday at its lowest price since September 2009 ($18.83 per unit).   NRP remains down on a price basis 24.7% year over year, and is still trading at a lower price than its price 30 days ago.  NRP continues to pay its distribution to all unitholders, which represents more than a 10% yield currently, and will likely continue to move up if natural gas prices confirm recent strength (Friday’s action notwithstanding).  RRMS had an exciting week as well, popping 7.7% Thursday after management increased 2012 guidance, and then dropping 3.2% Friday, to finish the week +6.6%.  XTEX was down 10.5% on the week to lead all MLP laggards.  SPH, which had an equity offering price this week, was down 9%.

On the winning side of the ledger for the year, NKA and CQP remain in the top spots.  CQP had another back-patting press release this week on progress towards a 2015 in-service date for its LNG export facility, but that was not enough to move its unit price this week.  ARP displaced NGL from the 5th best spot this week, while RRMS leapfrogged CPLP.   Taking a step back, the top 5 performing MLPs don’t have much in common with each other, other than they all have relatively small market caps.  It has been a strange year in that way, the next 5 best performing MLPs year to date are CLMT (specialty refining), NGL (crude and propane infrastructure), BIP (diversified foreign assets), OILT (crude storage), and TGP (shipping).  A real grab bag.

The bottom 5 on the other hand, represents a clear trend of cheap natural gas prices (and a warm winter for SPH).  RNO announced increased investment in the Utica Shale, and was up sharply Thursday and Friday on that news, finishing the week up 6.1%.  That performance was not enough to move RNO from the third worst spot for year.  NRP, on the other hand, with its 15.5% increase this week, jumped all the way out of the bottom five (second-to-last prior week).  SPH fell back to take its place.

For the year, variable distribution MLPs have been the clear winners.  RNF leads that group and all publicly-traded partnerships with a total return of 110.3% year to date.  Other variable distribution MLPs that have outperformed this year include: TNH (+45.7% total return), Northern Tier Energy (+26.0%) and CVR Partners (+11.5%).  GPs are also outperforming (as usual) with ATLS (+42.6% total return), TRGP (+11.5%) and KMI (+10.5%).

Oil and natural gas remain depressed year to date, which has helped the broader economy generally and certain manufacturing and chemical companies specifically, helping the S&P 500 outperform year to date.  The lower commodity prices have put a strain on natural gas focused producers like Chesapeake Energy, which announced it had written down the equivalent of 24% of reserves that are no longer economically recoverable (mostly in the Barnett and Haynesville shales).  Reduced activity in those areas have hurt some MLPs like CMLP, and have led the sector as a whole to underperform the broader stock market year to date.

So far, its been a benign August, unusual given the current streak of 3 straight negative Augusts in a row for the MLP Index.  With another MLP IPO pricing next week and a rush to get equity done before the capital market basically close for the following 3 weeks, expect MLP volatility to re-surface this week.  More on the week that was in my Week Thoughts post coming later tonight.

Platts MLP Symposium

I’ll be speaking at the 2nd Annual Platts MLP Symposium Oct 4-5 in Las Vegas.  The main topics of the conference will be commodity shifts, alternative structures, and evolving markets.  My panel topic will be the current state of the MLP Capital Markets, with research analyst Gabe Moreen (BofA ML) and Andrew Geisler (from Liquidnet).  See more information about the conference here.  Blog readers can contact me for a $350 off coupon.

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