Refiners Shine in Ugly Year for MLPs
Two thousand fifteen is mercifully in the books. The year saw the Alerian MLP Index, a composite of the 50 largest energy MLPs, drop 32.6% — its second worst annual performance on record. Among the 128 MLPs in my MLP database, the average return for those in business during all of 2015 was -29.7%.
Nevertheless, there were winners in the space. Here are 2015’s best performing MLPs, ranked in descending order of total return last year:
- 2015 Return = Total 2015 unit price return including dividends
- EV = Enterprise value in millions as of Jan. 4, 2016
- EBITDA = Earnings before interest, tax, depreciation and amortization for the trailing 12 months (TTM), in millions
- Debt/EBITDA = Net debt at the end of the most recently reported fiscal quarter divided by TTM EBITDA
- FCF = Levered free cash flow for TTM in millions
- Yield = Annualized yield based on the most recent quarter’s distribution
Alon USA Partners (NYSE: ALDW) was the runaway winner. No other MLP came close, but the next two strongest performers also happened to be fuel refiners. In fourth place was Star Gas Partners (NYSE: SGU), a home heating oil distributor and services provider. Coming in fifth was the amusement parks operator Cedar Fair (NYSE: FUN), which was added to the MLP Profits Aggressive Portfolio in January 2015.
The list of losers was much longer. Here are the 10 worst-performing MLPs of 2015, all of which are either involved in oil and gas production, or in mining the sand used in hydraulic fracturing:
I omitted the yields from this table because they were either zero because the partnership has cut the distribution, or astronomical (in some cases above 100%) because the partnership hasn’t yet announced an expected distribution cut.
Lest you be tempted into bottom fishing too early, note that the worst overall performer, New Source Energy Partners (OTC: NSLP) is actually making its second straight appearance in the bottom 10, after ranking as the 5th worst performer last year. Also appearing in the bottom 10 for the second straight year were Mid-Con Energy Partners (NASDAQ: MCEP), Legacy Reserves (NASDAQ: LGCY), and Linn Energy (NASDAQ: LINE).
The dust is far from settled in the energy sector, but there should be some clear winners following the recent passage of the federal spending bill. Join us at MLP Profits this year as we identify the partnerships that are poised to thrive — as well as those to avoid in 2016.
Enterprise Powering Up
With energy prices crashing so spectacularly last year, it’s only natural that everyone has rubbernecked at the resulting wreckage. Energy equities provided plenty of fireworks of their own; it was doubly hard not to be distracted by that spectacle given the hurt it’s inflicted on investment portfolios.
Largely out of sight and out of mind amid this turmoil, the plodding work of reshaping and expanding the U.S. energy infrastructure goes on as before. Such projects are increasingly demanded (and financially backed) by energy users seeking to take advantage of the secure, abundant and relatively underpriced U.S. energy supplies. The coming year is likely to see an unusually large number of ribbon cuttings thanks to a big wave of projects sold and financed in better times. Their cost is already reflected on corporate balance sheets, while the profit streams they will produce are just beginning to trickle in.
In an announcement widely ignored last week on the eve of New Year’s festivities, the leading midstream master limited partnership Enterprise Products Partners (NYSE: EPD) said it has completed two key projects that exemplify many of these trends.
The really big deal was the expansion nearly doubling the loading capacity at Enterprise’s liquefied petroleum gas (LPG) export terminal on the Houston Ship Channel. The added capacity is fully contracted for at least the next two years, as exporters seek to capitalize on the still significant cost advantage of U.S. propane over Asian and European naphtha.
Enterprise also announced the completion of the final segment of the Aegis pipeline that will ship ethane from its gas fractionation base in Texas to a petrochemical hub in Louisiana. 270 miles to the east. The pipeline’s capacity is almost fully booked by chemicals manufacturers.
Those two projects cost a combined $1.8 billion, and Enterprise expects to bring online projects worth another $4.5 billion this year, including a new ethane export terminal and a propylene plant. These completions are back-end loaded, so are unlikely to provide a meaningful cash flow boost this year. But they should do just that in 2017.
In the meantime, the unit price is up 18% from its mid-December low, and continues to yield a well-covered 5.9% from the premier network of U.S. midstream assets. Conservative Portfolio pick EPD ranks as the #4 Best Buy below $34.
— Igor Greenwald