Simon Lack

About the Author Simon Lack

Following 23 years with JPMorgan, Simon Lack founded SL Advisors, LLC, a Registered Investment Advisor, in 2009. Much of Simon Lack’s career with JPMorgan was spent in North American Fixed Income Derivatives and Forward FX trading, a business that he ran successfully through several bank mergers ultimately overseeing 50 professionals and $300 million in annual revenues. Simon Lack sat on JPMorgan’s investment committee allocating over $1 billion to hedge fund managers and founded the JPMorgan Incubator Funds, two private equity vehicles that take economic stakes in emerging hedge fund managers. Simon Lack’s deep experience in financial markets, managing complex trading businesses and overseeing hedge funds provide him with a unique perspective from which to manage investments and advise clients. Simon serves on the Board of Trustees of Wardlaw-Hartridge School in Edison, NJ where he chairs the Investment Committee, and also chairs the Memorial Endowment Trust Investment Committee of St. Paul's Church in Westfield, NJ.

Business Seems to be Going Well for These MLPs: ONEOK, Inc. (OKE) & Enterprise Products Partners L.P. (EPD)

Several Master Limited Partnerships (MLPs) announced their quarterly earnings last week. The overall picture continues to be one of businesses performing well with good distribution coverage and continued plans to grow their infrastructure networks while responding appropriately to shifts in the domestic production landscape.

So Enterprise Products Partners L.P. (NYSE:EPD), an MLP with no Incentive Distribution Rights (IDR) drag detracting from its investors’ returns, announced their 43rd consecutive distribution increase of 5.6% compared with a year earlier. Their payout is also covered at 1.4X by Distributable Cash Flow.

ONEOK, Inc. (NYSE:OKE) the General Partner (GP) for Oneok Partners (OKS) was a more nuanced story. The stock price fell following the earnings release as the distribution remained flat on a quarterly basis (+8% on a year ago). Of note was that cashflows to OKE from OKS, reflecting its role as OKS’s GP, were $169MM, +16% on a year ago. Interestingly, Net Income and DCF at OKS itself fell in 1Q15 compared with the prior year. They explained it so, “Variances in financial performance between the first quarter 2015 and first quarter 2014 were primarily a reflection of significantly higher weather-related seasonal demand, resulting in higher prices for propane and natural gas, in the Midwest due to severely cold weather during the first quarter 2014 and the continued impact of commodity price declines in the first-quarter 2015.”

A cold 2014 winter and lower commodity prices this year affected earnings. The GP experienced more stability in its earnings than was reflected in the underlying MLP it controls. Nonetheless, full year guidance was confirmed as unchanged both for OKS and OKE. OKE’s coverage of its distribution was 1.2X which prompted one analyst to ask on the earnings call whether OKE might even use some of its cash to buy OKS units on the open market. You could interpret the absence of a dividend hike by OKE as symptomatic of a tougher business environment, or you might regard their resulting comfortable distribution coverage as reflecting an abundance of cauti0n. We lean towards the latter.

Overall, for these two MLPs, business seems to be going well. We are invested in EPD and OKE.