MLPs: Wait For It

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Includes: AHGP, AROC, CPLP, ETE, ETP, FGP, MEMP, NBL, NBLX, PAA, SUN, TEP, TRGP, TRP, ULUCF, VLO, VLP, VNOM, WLKP
by: Hinds Howard

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 a 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's 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 difference 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.

Winners and Losers

Noble Midstream Partners (NYSE:NBLX) led the sector on the heels of its sponsor Noble Energy (NYSE:NBL) acquiring more acreage in the Permian that's apparently mostly undedicated from a midstream perspective. Westlake Chemical Partners (NYSE:WLKP) rallied on affirmation of its tax status after more than a year of suspense and uncertainty. SunCoke Energy Partners (NYSE:SXCP) was the surprise loser of the IRS MLP regulations. Capital Product Partners' (NASDAQ:CPLP) distribution growth announcement was well received, and the Teekay entities had another solid week.

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YTD Leaderboard

January isn't even over yet, and already more than 5 MLPs have 15%+ returns, including NBLX, Ferrelgas Partners (NYSE:FGP) and the Teekay MLPs. Plains All American Pipeline (NYSE:PAA) is the only big-cap MLP among the winners and losers, currently sitting at third worst return for the year so far.

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General Partners and Corporations

Targa Resources Corp. (NYSE:TRGP) led all GPs and midstream corporations this week, presumably on strong propane prices and Permian M&A enthusiasm. Energy Transfer Equity (NYSE: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 Archrock Inc. (NYSE:AROC) and Alliance Holdings GP (NASDAQ:AHGP).

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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.

Capital Markets

  • Viper Energy Partners (NASDAQ:VNOM) priced public offering of 8.5 million shares at $15.50/units, raising $131.8 million (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 the 7.0 million units originally offered.

Growth Projects / M&A

  • PAA announced it will expand capacity on Cactus Pipeline by 60 Mbpd to 390 Mbpd by 3Q17 (press release).
    • The expansion allows the company to move production from the Permian to Corpus Christi.
  • Valero Energy Partners (NYSE:VLP) acquires 40% of the Red River pipeline for $70 million from 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. (NYSE:VLO) will support the acquisition with a new 10-year throughput agreement with VLP that includes a minimum volume commitment.
    • Funded using cash on hand.
  • Sunoco LP (NYSE: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 (NYSE:TRP) received FERC approval to construct the 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 (NYSE:TEP) and Rockies Express Pipeline (REX) announced a settlement for a $303 million breach of contract claim against Ultra Resources Corp. (OTC:ULUCF) (press release).
    • The settlement requires Ultra to pay REX $150 million 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 $26.8 million annually.
  • Energy Transfer's (NYSE: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 and negative implications for SunCoke Energy Partners, which played out in trading on Friday.
  • Memorial Production Partners (NASDAQ:MEMP) filed for bankruptcy protection via Chapter 11 (press release).
    • The company expects to eliminate more than $1.3 billion of debt from its balance sheet.

Distribution Announcements

Distribution announcements_1-20-17

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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