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July 13, 2012

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Winners & Losers: Oil Up, MLPs Up, Earnings Up Next

MLPs were up 1.8% for the week, continuing to gain on the S&P 500, which was basically flat again this week despite some downs then ups in the interim.  Despite breaking its 9 day winning streak with a slight pause on Tuesday, the MLP Index is up 12 out of the last 13 days.  Oil and natural gas were the big movers and likely the drivers of MLP performance this week.  Variable distribution MLPs were down as the fertilizer MLPs struggled.  GPs trailed despite big days for KMI and TRGP on Friday.

Distribution announcement season kicked off this week with no real surprises, earnings season gets underway next week with KMP first as usual this Wednesday.  I’ll be on a plane when the release hits, which is too bad, but it should be there when I land.
Winners this week were led by LRE at +10.5%.  LRE is up a staggering 35% since it bottomed at $12.34 on June 21st, roughly mirroring the bottom in oil around that date as well.  It remains well below IPO price and is still climbing out of its hole, as shown in the year to date chart below.

Other big winners QRE and LGCY also benefited from commodity price correlation this week, while CQP benefited from another financing milestone in its race to launch its LNG export facility.
GMLP led the losers this week on account of its announced $385mm acquisition, which sent it down 7.8% by Tuesday.  By then the $170.2 million overnight equity offering that priced Wednesday (and $30mm in units bought by its GP) had a positive impact on the stock.  The equity deal priced at a 3.7% discount and traded up the next day, closing 4.5% higher than the offering price.  That’s a really good example of what happens when equity overhang goes away.  Other big losers included RNO and NKA, which seem to be either way up or way down on a given week.

MLPs continue to narrow the gap with the S&P 500 on a year to date basis, and if MLPs can hold up through distribution season, that gap may further narrow in the next month.  Oil and natural gas strength of late (natural gas is only down 3.8% for the year now!) has helped, but the commodity slump is what will be in the earnings announced starting next week.   So, the stronger natural gas and oil prices will have a positive impact in the coming quarters, but MLPs might be volatile in the meanwhile.  Not on the chart below are NGLs, which were up big this week (ethane up 14.7%, propane up 7.6% week over week).

There were no changes in winners constituency YTD, but LRE climbed out of the bottom five, replaced by NRP this week.

More to come on Sunday on all the news of the week, including the WPZ / Caiman announcement, the RNO operational update, EROC’s add on bond sale, GMLP’s acquisition, Suburban’s bond exchange, etc etc.

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