The third quarter is in the books, and it was one MLP investors would rather forget. West Texas Intermediate (WTI) began the quarter near $60 a barrel (bbl) following a strong second quarter. But the benchmark oil price would plunge 24% in Q3, taking nearly every MLP down with it. Natural gas prices fared better, but still dropped 12% during the quarter. For the first time in three years, natural gas prices remained under $3 per million British thermal units (MMBtu) for an entire quarter.

The impact of continued weakness in commodities prices was brutal. The Alerian MLP Index, which consists primarily of large and mid-cap energy MLPs and captures about 75% of the sector’s market capitalization, had a total return of -21.1% for the quarter. The average total return for MLPs as a whole was -26.5%. In fact, the decline was so broad that only three of the 127 publicly traded partnerships in my database — the refiners Alon USA Partners (NYSE: ALDW), CVR Refining (NYSE: CVRR) and Northern Tier Energy LP (NYSE: NTI) — registered a positive total return for the quarter. ALDW was the best with a 15.5% return.

Here are the top 10 performers for the quarter, sorted in order of descending Q3 total return. Note that none are conventional midstream MLPs:

• EV = Enterprise value in millions as of Oct. 19
• Q3 = Q3 total return calculated from the close on June 30 to the close on Sept. 30, adjusted for dividends paid during the quarter
• YTD = Year-to-date total return

The bottom 10 performers for the quarter, starting with the worst, are this year’s usual suspects among the coal producers, fracking sand producers and oil and gas producers:

Despite the Q3 beatdown, there are still a number of partnerships in positive territory for the year. Here are the top 10 for the year through Q3:

Here’s hoping we get an extended bounce in Q4.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

Genesis Pumps Up the Cash Flow       

Genesis Energy (NYSE: GEL) is a (primarily) Gulf Coast crude and fuel logistics provider that’s increased its distribution at a compounded annual growth rate of more than 10% for the last decade, a pace it looks very likely to sustain for at least several more years.

Its business is broadly diversified between offshore crude pipelines, onshore pipelines, sulfur removal from refineries, refinery logistics and marine transport. Its clients are mostly the thriving Gulf Coast refineries.

The rapid and steady payout growth, good diversification and fortuitous location on the energy supply chain have helped Genesis eke out a 3% total return year-to-date. That’s startling outperformance against a 23% year-to-date decline in the Alerian MLP Total Return Index.

Despite the resilience, the annualized distribution yield remains at 6.1%, unusually high for a double-digit growth rate of any length, let alone a decade-long one.

The distribution coverage on the latest 10% year-over-year increase in the second quarter was 1.0x, but that was only after Genesis issued $453 million of equity to finance some of the $1.5 billion offshore pipelines acquisition from Enterprise Products Partners (NYSE: EPD).

Excluding the equity issuance to pay for assets that did not contribute to that quarter’s earnings the coverage would have been 1.1x. It will be climbing dramatically in short order, because in exchange for increasing its unit count by 10% and taking on an additional $1 billion of debt costing well under 7% annually, Genesis acquired from Enterprise a new profit stream equal to 56% of its EBITDA (cash earnings ex-items) in the year through June.

That puts the acquisition multiple at a reasonable 7.5x EBITDA. Enterprise dumped the pipelines it previously co-owned with Genesis to afford onshore midstream expansion in the Eagle Ford, which is strategic to its coastal logistics business in Texas.

The oil price slump has put a big crimp in oil producers’ spending, raising concern that offshore production will soon slow. But Genesis recently noted that the number of deepwater rigs in the Gulf of Mexico has remained steady over the last year even as the onshore rig count has plummeted.

On the second-quarter conference call at the end of July, CEO Grant Sims said “we don’t have any concerns [about] any kind of dramatic decrease in volumes over the next three to five years” based on the recent offshore activity by contracted shippers.

The contracts on those offshore pipelines have some minimum throughout take-or-pay commitments, though Genesis doesn’t disclose their extent or length. The risk of an eventual decline in a prolonged production slump is certainly real.

The refinery logistics and marine shipping businesses could run into headwinds as well if the refining sector’s growth were to slow, although there’s no immediate sign of that amid record domestic fuel demand.

While the risks are real so are the attractions of a payout yielding 6%, increasing 10% a year and with distribution coverage approaching 1.5x penciling in the likely boost from the Enterprise acquisition.

Not everyone’s a fan, and the unit price slumped 12% over the first three trading sessions last week after Hedgeye’s Kevin Kaiser called Genesis a short. GEL then proceed to rebound 8% Thursday following Kaiser’s presentation.

Kaiser’s criticism seems to be mostly of the generic variety he has leveled at MLPs as a whole for years, customized with warnings about the slowdown offshore and an oversupply of marine barges. But management with a long record of delivering on its promises provided a dramatically different perspective less than three months ago, and is likely to do so again on the morning of Nov. 3, after the release of third-quarter results. Buy GEL below $53.

— Igor Greenwald