MLP Monthly Report: April 2018

The April MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.

Summary

News:

1) Tallgrass Energy GP, LP (TEGP) announced the acquisition of Tallgrass Energy Partners (TEP) through a taxable stock-for-unit merger under which TEGP will acquire all of TEP’s units. The transaction, which will create a single public C-Corp entity, will eliminate TEP’s incentive distribution rights (IDRs) and improve the surviving entity’s cost of capital. Following the transaction, expected to close by Q2 2018, TEGP will be renamed Tallgrass Energy, LP and will trade under the ticker symbol TGE on the NYSE.

2) According to the Energy Information Administration’s (EIA) latest estimates, U.S. oil production stood at 9.96 million barrels per day (BPD) in January 2018.  This high level of output was primarily due to the rising shale output in the Permian Basin and Bakken. The EIA estimates U.S. oil output will reach 11 million BPD by the end of 2018, potentially surpassing Russia to become the largest oil producer in the world.

3) MLPs, as measured by the Solactive MLP Infrastructure Index, fell -12.55% in Q1, mainly due to the Federal Energy Regulatory Commission (FERC) ruling disallowing an MLP income tax recovery on cost of service pipelines, as well as continued uncertainty surrounding potential corporate structure simplifications and C-Corp conversions.

Sources: Tallgrass Energy Partners, Reuters, ETF.com, Forbes.com, U.S. Energy Information Administration, Bloomberg.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell -7.5% last month as MLPs were hurt by weaker sentiment surrounding the space. The index has fallen -23.9% since last March. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 8.94%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (6.19%), Emerging Market Bonds (5.87%), Fixed Rate Preferreds (5.68%), and REITs (4.21%). MLP yield spreads versus 10-year Treasuries currently stand at 6.20%, higher than the long-term average of 3.90%. (Sources: Bloomberg, AltaVista Research, and Fed Reserve)

Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, fell -4.33% last month. Since March 2017, the EV-to-EBITDA ratio has fallen by approximately -11.91%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count increased last month to 993 rigs, rising by 15 rigs compared to last month’s count of 978 rigs. The rig count has more than doubled since its recent low point in May 2016 of 404 rigs. US production of crude oil rose to 10.460 mb/d in the last week of March compared to 10.283 mb/d at the end of February. (Source: Baker Hughes & EIA)

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month- and quarter-end, please click here.