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MLP Monthly Report: April 2021

Apr 20, 2021

View all Rohan Reddy's ArticlesRohan ReddyRohan Reddy

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) Saudi Aramco agreed to sell a 49% stake in the newly formed pipeline entity, Aramco Oil Pipelines Company, to an international consortium led by EIG Global Energy Partners for $12.4 billion. As part of the transaction, Aramco Oil Pipelines Company will lease usage rights in Aramco’s crude oil pipelines network for a 25-year period. Following the deal, Aramco will hold 51% stake in the new company.

2) Oasis Midstream Partners LP (OMP) will eliminate its incentive distribution rights (IDRs) and acquire the remaining stake in Bobcat DevCo LLC and Beartooth DevCo LLC from Oasis Petroleum Inc. (OAS) for $229 million in cash and approximately $510M worth of OMP common units, based on the 20-day volume weighted average price ended March 19, 2021.

3) The Organization of the Petroleum Exporting Countries and its allies (OPEC+) have agreed to gradually curb ongoing output cuts beginning May 2021. It is expected that production will increase by 350,000 barrels per day (bpd) in May, followed by 350,000 bpd in June and 400,000 bpd in July. Saudi Arabia has also released plans to curb its voluntarily output cuts gradually in the same period by adding 250,000 bpd in May, 350,000 bpd in June and 400,000 bpd in July.

Sources: Reuters, Oasis Midstream Partners LP

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 8.33% last month. The index is increased by 100.36% since last March. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 9.04%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.94%), Fixed Rate Preferreds (4.27%), Emerging Market Bonds (4.05%), and Investment Grade Bonds (2.32%).1 MLP yield spreads versus 10-year Treasuries currently stand at 7.29%, higher than the long-term average of 5.71%.2 (Sources: Bloomberg and Fed Reserve)

Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, decreased by 0.47% last month. Since March 2020, the EV-to-EBITDA ratio is up by approximately 19.62%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 417 rigs, increasing by 15 rigs from last month’s count of 402 rigs. US production of crude oil increased to 11100 mb/d in the last week of March compared to February levels of 10.000 mb/d. (Source: Baker Hughes & EIA)

For performance data current to the most recent month- and quarter-end, please click here

As of 3/31/2021, Oasis Midstream Partners LP (OMP) was a holding in the Global X MLP ETF (MLPA) with a 1.65% weighting.

MLPX ETF and MLPA ETF do not have any holding in Aramco Oil Pipelines Company, EIG Global Energy Partners and Oasis Petroleum Inc. (OAS).

Category: Reports

Topics: Income, MLPs

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Investing involves risk, including possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in securities of MLPs involve risk that differ from investments in common stock including risks related to limited control and limited rights to vote on matters affecting the MLP. MLP common units and other equity securities can be affected by macro economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). The Fund invests in the energy industry, which entails significant risk and volatility. In addition, the Fund is non-diversified which represents a heightened risk to investors. Furthermore, the Fund invests in small and mid-capitalization companies, which pose greater risks than large companies. MLPA has a different and more complex tax structure than traditional ETFs and investors should consider carefully the significant tax implications of an investment in the Fund. The Funds are non-diversified. Current and future holdings are subject to risk.

MLPA is taxed as a regular corporation for federal income tax purposes, which differs from most investment companies. Due to its investment in MLPs, the fund will be obligated to pay applicable federal and state corporate income taxes on its taxable income as opposed to most other investment companies. The fund expects that a portion of the distributions it receives from MLPs may be treated as tax-deferred return of capital. The amount of taxes currently paid by the fund will vary depending on the amount of income and gains derived from MLP interests and such taxes will reduce an investor’s return from an investment in the fund. The fund will accrue deferred income taxes for any future tax liability associated certain MLP interests. Upon the sale of an MLP security, the fund may be liable for previously deferred taxes which may increase expenses and lower the fund’s NAV. The potential tax benefits from investing in MLPs depend on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund’s value. The index however is calculated without any deductions for taxes. As a result, the Fund’s after tax performance could differ significantly from the index even if the pretax performance of the Fund and the performance of the index are closely correlated.

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Carefully consider the fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the fund’s full or summary prospectus, which may be obtained by calling (1.888.493.8631), or by visiting globalxetfs.com. Read the prospectus carefully before investing.

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Global X Management Company, LLC serves as an advisor to the Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO, 1 Freedom Valley Drive, Oaks, PA, 19456), which is not affiliated with Global X Management Company LLC or Mirae Asset Global Investments. Solactive Indexes have been licensed by Solactive AG for use by Global X Management Company, LLC. Global X Funds are not sponsored, endorsed, issued, sold, or promoted by Solactive AG nor does this company make any representations regarding the advisability of investing in the Global X Funds.