There were a half a dozen initial public offerings (IPOs) by master limited partnerships in the first half of the year, and all but one are now in the green while one has nearly doubled in value.

The first MLP IPO of 2013 debuted on Jan. 15. USA Compression Partners (NYSE: USAC), which I mentioned in last week’s issue, provides compression services for the oil and gas industry. Units have advanced 36 percent since the IPO, and at the current price yield 7.3 percent.

The day after the USA Compression Partners IPO, CVR Refining (NYSE: CVRR) made its debut.  CVRR was spun off from CVR Energy (NYSE: CVI), and both companies remain majority-owned by Carl Icahn. CVR Refining’s primary assets are two refineries located in Kansas and Oklahoma with a combined processing capacity of approximately 185,000 barrels per day (bpd). These refineries are strategically located near the major Cushing, Oklahoma shipment and storage hub, with easy access to discounted feedstock from the nearby Permian basin, as well as the Bakken shale and Canadian oil sands.

But refiners have struggled with diminished margins in 2013 because of a much lower Brent-WTI differential. After the recently concluded second quarter, CVRR declared a distribution of $1.35 per unit, bringing its per-unit distributions for the first half of the year to $2.93. At the same time, CVR Refining lowered its annual distribution target to a range of $4.10 to $4.80 per unit. This was lower than the outlook issued in March, when it foresaw annual distributions of $5.50 to $6.50. CVRR units slid on the news, and are presently trading slightly below the $25 IPO price. The lower end of the revised forecast implies distributions of $1.17 per unit in the second half of the year, for a forward annualized yield of 10 percent based on the recent $23.50 unit price.

SunCoke Energy Partners (NYSE: SXCP) was the third IPO to debut during a very busy third week of January. SXCP is the first MLP to produce coke, a coal-like solid fuel used in the blast furnace production of steel. SXCP’s sponsor is SunCoke Energy (NYSE: SXC), the largest independent producer of metallurgical coke in the Americas.

SXCP operates two cokemaking facilities in Ohio, and has long-term take-or-pay contracts with two of the largest blast furnace steelmakers in North America. Distributable cash flow (DCF) in second quarter 2013 totaled $18.7 million. The expected cash payout was $13.5 million, for a second-quarter coverage ratio of 1.38. SXCP’s second-quarter cash distribution was $0.4225 per unit, following a first-quarter distribution of $0.3071 per unit. Based on the recent price of $24.30, the annualized yield based on the previous quarter is 7 percent, and the unit appreciation since the IPO has been 33 percent.

New Source Energy Partners (NYSE: NSLP) debuted in February, and became the first upstream MLP IPO of the year. New Source Energy is engaged in the development and production of onshore liquids-rich conventional resource reservoirs in east-central Oklahoma. As of the end of 2012, the partnership’s properties included ~ 14.2 million barrels of oil equivalent (MMBoe) total proved reserves with a ~72 percent liquids/28 percent gas split. Commodity derivative contracts cover approximately 79 percent of estimated total production for 2013 and 2014.

Since the Feb. 8 IPO, NSLP units have appreciated by 7 percent. The annualized yield based on the most recent quarterly distribution is 10.6 percent. DCF coverage for the quarter was 1.0x, but the partnership expects this to improve going forward, as quarterly results were hurt by flooding.

On April 10, KNOT Offshore Partners (NYSE: KNOP) launched, and units have risen nearly 11 percent since. KNOP owns and operates shuttle tankers under charters of five years or more. A shuttle tanker is a specialized ship designed to be an alternative to pipelines in some situations. The tanker transports crude oil and condensates from offshore oil fields to onshore terminals and refineries.

Following Q2, KNOP declared a quarterly cash distribution of $0.3173 per unit. The distribution was prorated from the closing date of the initial public offering, and corresponds to $1.50 per outstanding unit on an annualized basis. At the present unit price, this equates to a 6.2 percent annual yield.

Emerge Energy Services (NYSE: EMES) had a tepid opening on May 9, but in late May the partnership began a steady climb that has seen its unit price rise 82 percent since the IPO. Emerge Energy Services operates in two segments of the energy industry: Sand Production and Fuel Processing and Distribution. Through its subsidiaries, Emerge Energy Services provides products and services to both the upstream and midstream energy segments.

Emerge Energy Services is, like CVR Refining, a variable distribution MLP. Such MLPs have no minimum quarterly distribution and no implied promise to keep the payout steady or growing. The distributions vary with the cash flow of the MLP. For the second quarter, the prorated distribution was $0.70 per unit, 13 percent higher than projected in the IPO prospectus. This prorated distribution projects to an annual yield of 9.2 percent.

Tallgrass Energy Partners (NYSE: TEP) is a midstream limited partnership that provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the US. The partnership launched on May 13, and after initially rising, units were trading back at the IPO price by late June.

In late June the partnership increased EBITDA guidance above analysts’ expectations and units began to climb. They are presently up 8 percent since the IPO. The second quarter DCF coverage was 1.07x, with guidance for 1.2x for the entire year reiterated on the Q2 conference call. The prorated quarterly cash distribution for Q2 was $1.15 on an annualized basis, corresponding to an annual yield of 4.9 percent at the current unit price.  

In next week’s issue, we will take a look at the MLP IPOs for the second half of 2013.

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Portfolio Update

Bluegrass Grows on Boardwalk

The nuns protesting the pipeline haven’t been appeased by promises to bypass their land, and other opponents want the state to bar forced easements by eminent domain. But despite festering opposition in Kentucky, Boardwalk Pipeline Partners (NYSE: BWP) and Williams (NYSE: WMB) are pushing ahead with plans for the Bluegrass Pipeline, which will transport up to 200,000 barrels of natural gas liquids (NGLs) a day from western Pennsylvania to the Louisiana coast for processing into liquid fuels for export.

The partners have not yet sanctioned the project, but the emergence of additional detail about related gas treatment and export facilities suggests they have every intention to proceed. Last week, Williams and Boardwalk announced a joint venture agreement for a liquefied petroleum gas export terminal near Lake Charles, Louisiana, which would export fuels processed from NGLs at a nearby fractionation plant (which would also be jointly owned by the partners) to markets in Asia, Latin America and Europe.

The terminal would have a loading capacity of 25,000 barrels per hour and storage facilities for 900,000 barrels of fully refrigerated propane and butane. The NGLs would be coming to the Gulf from the booming gas production in the Marcellus and Utica shales located under parts of Pennsylvania, West Virginia and Ohio.

Shares of Conservative Portfolio holding Boardwalk are up a bit more than 2 percent since the end of August, but remain a Hold pending more clarity on Bluegrass and competing proposals, as well as improvement in the distribution coverage.

— Igor Greenwald