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Energy Transfer Equity Rose after Sunoco’s Dropdown Announcement

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Best performers

Southcross Energy Partners (SXE) was the best performer among midstream MLPs at the end of trading on Monday, November 16. It rose 1% in a single trading session yesterday.

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Southcross Energy Partners

However, Southcross Energy Partners lost 66.4% of its equity value since the beginning of the year. Its poor YTD (year-to-date) market performance is due to its significant natural gas and NGL (natural gas liquid) exposure. The partnership provides natural gas gathering, processing, treating, compression, and transportations services. Apart from this, Southcross Energy Partners is also engaged in natural gas and NGL acquisitions and marketing.

Energy Transfer Equity

Energy Transfer Equity (ETE) is next on our list of the top midstream MLP performers. It rose 8.8% yesterday. Although the entire midstream sector performed well yesterday, Energy Transfer Equity rose more after an announcement by Energy Transfer Partners (ETP). It will drop down its remaining wholesale fuel and retail marketing assets to Sunoco LP (SUN). The transaction’s value is $2.2 billion.

According to the press release, “SUN will pay to ETP approximately $2.2 billion in cash (including the expected value of working capital) and will issue to ETP approximately 5.7 million SUN common units valued at approximately $194 million based on the five-day volume-weighted average price of SUN’s common units as of November 13, 2015.”

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The transaction is expected to be immediately accretive to Sunoco’s distributable cash flow and distributions. At the same time, it reduces the amount of equity funding for Energy Transfer Partners’ 2016 capital program. Energy Transfer Equity benefits from the general partner interest and IDRs (incentive distribution rights) it holds in Sunoco.

Other best performers

The next three stocks on the list of the top five midstream MLP performers on November 16 were DCP Midstream Partners (DPM), Midcoast Energy Partners (MEP), and Williams Partners (WPZ). They rose 6.5%, 6.4%, and 5.6%, respectively. They returned -39.4%, -16.3%, and -35% YTD.

The Alerian MLP ETF (AMLP) includes 23 midstream energy MLPs. It rose 3.9% yesterday. Together, DCP Midstream Partners and Williams Partners account for 9.0% of AMLP. For context, the upstream energy company heavy SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 4.1% on the same day.

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