MLP Monthly Report: August 2017

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



1) As part of the OPEC meeting on July 25th, the cartel announced two major pieces of news. Nigeria, previously exempt from the production cuts agreement, will now take part in the agreement and limit production to not exceed 1.8 million barrels a day (mb/d). Current output stands at 1.6 mb/d. The second announcement was that Saudi Arabia will cut crude exports to 6.6 mb/d, lower than the 7.2 mb/d average from January to May this year.

2) British Petroleum (BP) announced the firm is considering an Initial Public Offering (IPO) of its U.S. pipeline assets in the Midwest and Gulf Coast. The regulatory process for forming this MLP entity, if considered, would be initiated in the 2nd half of 2017. The firm indicated that it would own the general partner of the MLP, all the Incentive Distribution Rights (IDRs), and most of the MLP’s limited partner interests. (Source: Reuters and British Petroleum.)

3) Kinder Morgan Inc. (KMI) announced a $2 billion share repurchase program and a 60% increase in its annual dividend next year. After 2018, the firm gave guidance that it expects to raise the dividend by 25% in both 2019 and 2020.

Sources: Wall Street Journal, Reuters, BP, Kinder Morgan Inc

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, rose 0.63% last month largely due to higher oil prices. The index has fallen 0.46% over the last one-year period. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.12%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.41%), Preferreds (5.40%), Emerging Market Bonds (5.37%), and REITs (4.02%).1 MLP yield spreads versus 10-year Treasuries currently stand at 4.82%, higher than the long-term average of 3.69%. (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, increased marginally in July compared to June as higher oil prices helped MLP unit prices. Since July 2016, the EV-to-EBITDA ratio has increased by approximately 14.60%. (Source: Bloomberg, MLPData, company financials).

Crude Production: The Baker Hughes Rig Count rose by 18 rigs to 958 compared to last month’s count of 940. 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 9.430 mb/d in the last week of July from 9.338 mb/d at the end of June. (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.