During June, the Alerian MLP Infrastructure Index (AMZI) rebounded from May’s underperformance and was up 1.3% on a total return basis, versus Standard & Poor’s 500 Index, which fell 1.7%. That said, capital market activity somewhat slowed during June, likely due to softer market conditions in May. Pipeline master limited partnerships (MLPs) raised a total of $1 billion in follow-on secondary offerings and roughly $50 million from the initial public offering (IPO) of Compressco Partners (GSJK).

IPOs

Given the amount of announced acquisitions in June, along with a backlog of potential IPOs, capital market activity may likely pick up going forward. Potential IPOs include American Midstream Partners LP (AMID), a gathering and processing partnership; LRR Energy LP (LRE) and Memorial Production Partners LP (MEMP), both exploration and production partnerships; and Oiltanking Partners LP (OILT), a crude and refined products midstream partnership.

Acquisitions

The largest acquisition offers announced in June include Energy Transfer Equity LP’s (ETE) offer to merge with Southern Union Co. (SUG) for nearly $8.9 billion and ETE’s agreement to contribute a 50% interest in Citrus Corp. to Energy Transfer Partners LP (ETP), pursuant to the merger of ETE and SUG. These proposed agreements, as well as the completed acquisition of the Louis Dreyfus Highbridge Energy LLC (LDH) natural gas liquids assets in May for $1.9 billion by ETP and Regency Energy Partners LP (RGNC), provide evidence that MLPs are still active acquirers of both public and private midstream assets.

New projects

Major project announcements in June include Enterprise Product Partners LP’s (EPD) plans to build a sixth NGL fractionator at Mont Belvieu and RGNC’s $450 million Eagle Ford Expansion, which includes the construction of a 400-mile wellhead gathering system, the installation of 125,000 horsepower of compression, and the construction of four gas and condensate export terminals.

INGAA

In late June, the Interstate Natural Gas Association of America (INGAA) released a report conducted by ICF International titled “North American Midstream Infrastructure Through 2035: A Secure Energy Future.” In the next 25 years, more than $250 billion, or roughly $10 billion per year, will need to be spent on natural gas, crude oil, and NGL infrastructure. More than half (or $130 billion) will be spent in the next decade alone.

Of the $250 billion, more than 80% will be spent on the natural gas front. In particular, almost $100 billion of new natural gas transmission mainline will need to be built primarily in the Central, Southwest, and Southeast regions and $70 billion will be spent on gathering lines and laterals to storage, power plants, and processing plants. The remaining 20%, or $46 billion, will need to be spent on crude oil and natural gas liquids infrastructure. More than 66% will be spent on oil transmission mainlines. The report further solidifies the role MLPs will play as the demand for new domestic midstream infrastructure remains strong. For more on this topic, see the INGAA article in this issue.

For June, the top performer in the Alerian MLP Infrastructure Index was Chesapeake Midstream Partners LP (CHKM), which gained 9.4%.

Emily Wang, a CPA, is a director for Alerian. The Alerian Index Series is used for asset allocation, investment analysis, portfolio hedging and the creation of index-tracking funds. Alerian is widely known for maintaining the leading benchmark for MLP equities: the Alerian MLP Index (AMZ).