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MLP Weekly: January Jump

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Units continued their climb during the first week of January as the benchmark index gained 2.5% amidst several MLP announcements targeting simplification.  As we look back at 2016, market fears exceeded reality, offering income and total return opportunities to investors who stayed the course and were rewarded by OPEC's production cuts.  Despite declining US production, market sentiment and fundamentals helped to stabilize unit prices, which appear poised to benefit from higher energy prices, production and exports.  A few notable metrics for MLP investors to consider:



Fund Flows -  $5.3B of new cash was allocated to MLP packaged products in 2016,  an 8.5% increase of total Funds AUM.  


Short Interest - down 38% between 12/31/15 and 12/15/16


Coverage Ratios - nearly 50% of MLPData's Midstream Scores universe increased per unit Distributable Cash Flow Coverage over the prior year.


Midstream Agreements -  despite the fear of widespread midstream contract re-negotiations after the Sabine ruling only a handful were modified


US Crude Production - Shale production declined 8.7% YoY as of December 2016


US Gas Production - Shale production increased 6.9% YoY as of December 2016



The EIA released their Annual Energy Outlook using a Base Reference case which assumes a relatively steady state of factors and a forward price of $109/b by 2040.  Below are the production estimates under the Reference case



Unit News


KNOT Offshore Partners issued 2.5MM new units at a 7.3% discount to prior close


DCP Midstream LLC, a 50/50 JV between Spectra Energy and Phillips 66, announced that have combined Midstream LLC assets and debt with DCP Midstream Partners, however the JV will continue to own the Incentive Distribution Rights and 38% of the DCP Midstream LP units.  The MLP will be renamed DCP Midstream LP and the ticker will change to DCP on January 23rd. The new entity will be the largest NGL producer and processor in the US and largest MLP G&P.   The JV is committed to maintaining a DCF Coverage ratio equal to or greater than 1.0, and will support the minimum coverage ratio by waiving up to $100MM of IDR payments annually through 2019.  More details can be found here


Global Partners continued to shed assets, the latest being a $17.3M sale to Sprague Partners of their natural gas marketing and electricity brokerage business.


Tallgrass Energy Partners announced the acquisition of Tallgrass Terrminals and the NatGas Operator from Sponsor TDEV for $140MM in cash, an 8.0x EBITDA multiple.  Management commented that 2017 guidance will be provided in February and this drop down was assumed in the previously communicated long term guidance.


Marathon Petroleum, sponsor of MPLX LP, concluded their strategic review and announced they plan to drop $1.7B of EBITDA to MPLX  by the end of 2017 at a 7.0-9.0x multiple, subject to IRS Private Letter ruling approval of the Fuel distribution assets,  The company expects to fund 50% of the acquisition with units, which will be purchased by Marathon Petroleum.  The sponsor also plans to convert their Incentive Distribution Rights into MPLX LP units after the dropdown transaction is completed.  More details can be found here


Antero Resources, sponsor of Antero Midstream Partners, announced 2017 production guidance where the company expects to increase production 20-25% over 2016 guidance.  Antero Midstream anticipates increasing distributions 28-30% through 2020 with 2017 guidance provided below





Q4 Distribution Scorecard


Four units reported this past week, three of which reported a flat distribution, and one with an increase






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