The Alerian MLP Infrastructure Index (AMZI) rose 1.3% on a total return basis in August, compared to the 2.3% total return for the S&P 500. Spreads to treasuries narrowed slightly from 461 basis points at the beginning of the month to end at 452 basis points.
During the month, two master limited partnerships (MLPs) announced plans for a two-for-one split of their units. The split for Plains All American LP was to be effective October 1 and for Magellan Midstream Partners LP on October 12.
On August 21, Sunoco Logistics Partners LP announced that it has received sufficient binding commitments for Phase I of its Permian Express pipeline. Phase I involves reversing its Wortham to Wichita Falls, Texas, pipeline, which currently flows south to north, and utilizing excess capacity on the southern leg of Sunoco's West Texas Gulf pipeline system, which is further south than Wichita Falls, to create a combined service from Wichita Falls to Beaumont, Texas. Phase I will receive its supplies from an interconnect with the Basin Pipeline, owned 87% by Plains All American, which carries crude oil from the West Texas Permian Basin.
Since Phase I utilizes current pipelines, the project will be completed fairly quickly, by first-quarter 2013, and move 90,000 barrels (bbl.) per day of crude oil. Notably, the original open season was from June 24 to July 24, but this was extended to August 7 and then finally to September 6. An extended open season could mean that demand was not overwhelming for the pipeline. But in this case, Sunoco was able to receive sufficient commitments.
On a trailing twelve-month basis through August, the AMZI has returned 17.0% on a total return basis versus the S&P 500 of 9.3%.
On June 11, Magellan Midstream and Occidental Petroleum announced an open season for the BridgeTex Pipeline, a new 440-mile pipeline transporting 278,000 bbl. per day of crude oil from Colorado City, Texas, in the northeastern Permian to Houston. The open season was to close on July 11 but was extended to July 18. At press time, no further plans were announced.
The BridgeTex Pipeline faces a higher threshold as it is a new-build pipeline, compared to Sunoco's use of existing infrastructure, and the pipeline would not be operational until mid-2014. Producers would have to wait longer for available takeaway capacity.
That said, Magellan is not missing out on the resurgence of drilling in Permian, as it already owns the Crane-to-Houston crude oil pipeline. This pipeline previously transported refined products east to west but the pipeline will transport 135,000 bbl. per day of crude oil west to east from Crane, Texas, in the central Permian, to Houston by early 2013 and 225,000 bbl. per day by mid-2013.
Like Sunoco and Magellan, other MLPs and pipeline operations are reconfiguring current infrastructure either to transport different natural resources or to switch the flow of the pipeline in a different direction. On August 20, Kinder Morgan Energy Partners sold $1.8 billion worth of assets to Tallgrass Energy Partners, which included the 5,100-mile Kinder Morgan Interstate Gas Transmission (KMIGT) pipeline that spans Colorado, Kansas, Nebraska, Missouri and Wyoming. In early August, Kinder Morgan had received enough shipper commitments for the Pony Express Pipeline, which would involve converting 430 miles of the KMIGT pipeline from transporting natural gas to crude oil and also constructing 260 miles of new pipeline. Altogether, the Pony Express Pipeline would transport 220,000 bbl. per day of crude oil from Wyoming to Cushing, Oklahoma, by late 2014.
Whether MLPs are building new pipeline, expanding pipeline capacity, or reversing the flows of pipeline, it is clear that while these hard-asset pipelines may be firmly placed into the ground, such assets can easily be adapted to meet changing supply and demand conditions. n
Maria Halmo and Emily Wang, CPA, are directors for Alerian, an independent indexing company that provides objective market information. Over $9 billion is directly tied to Alerian's indices, which include the leading benchmark of MLP infrastructure equities: the Alerian MLP Infrastructure Index (AMZI). For more information, please visit www.alerian.com.
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