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MLP Monthly Report: August 2020

Aug 28, 2020

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.

Summary

News:

1) Chevron Corp (CVX) announced it will acquire Noble Energy Inc. (NBL) for $5 billion in an all-stock deal expected to close later this year. With the assumption of debt, the enterprise value of NBL is estimated at $13 billion.

2) CNX Resources Corporation (CNX) and CNX Midstream Partners LP (CNXM) announced a deal which CNX will buy each outstanding common unit of CNXM in exchange for CNX common stock at a 15% acquisition premium to the average exchange ratio over the prior 30 day trading period. The transaction is valued at approximately $357 million. The deal, requiring CNX to issue about 37 million shares, is expected to close in Q4.

3) There were no distribution cuts across midstream MLPs this distribution season, as measured by the Solactive MLP Infrastructure Index. The recovery in the energy markets from their historic lows gave midstream companies confidence to maintain distribution levels.

Sources: Reuters, Noble Energy Inc., Prnewswire, Solactive.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, decreased 3.6% last month. The index is down by 46.87% since last July. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 14.97%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (6.04%), Fixed Rate Preferreds (4.67%), Emerging Market Bonds (4.26%), and Investment Grade Bonds (1.91%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 14.67%, higher than the long-term average of 5.26%.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 -0.16% last month. Since 2019, the EV-to-EBITDA ratio is down by approximately 12.87%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count reduced to 251 rigs, decreasing by 14 rigs from last month’s count of 265 rigs. US production of crude oil stayed flat at 11.000 mb/d in the last week of July compared to June levels. (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

MLPX ETF and MLPA ETF do not have any holding in Chevron Corp (CVX), Noble Energy Inc (NBL), CNX Resources Corporation (CNX), and CNX Midstream Partners LP (CNXM) as of 07/31/2020.

1. Asset class representations are as follows, MLPs, Solactive MLP Infrastructure Index; High Yield Bonds, Bloomberg Barclays US Corporate High Yield Total Return Index; Preferreds, ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, Bloomberg Barclays EM USD Aggregate Total Return Index; REITs, FTSE NAREIT All Equity REITS Index; Investment Grade Bonds, Bloomberg Barclays US Corporate Total Return Value Unhedged Index; Equities, S&P 500 Index; and Crude Oil, Generic 1st ‘CL’ Future.

2. MLPs are represented by the S&P MLP Index.

DEFINITIONS

Solactive MLP Infrastructure Index: The Solactive MLP Infrastructure Index is intended to give investors a means of tracking the performance of the energy infrastructure MLP asset class in the United States. The index is composed of Midstream MLPs engaged in the transportation, storage, and processing of natural resources.

The Solactive MLP & Energy Infrastructure Index: The Solactive MLP & Energy Infrastructure Index is intended to give investors a means of tracking the performance of MLPs and energy infrastructure corporations. Midstream energy infrastructure MLPs and corporations principally own and operate assets used in energy logistics, including, but not limited to, pipelines, storage facilities and other assets used in transporting, storing, gathering, and processing natural gas, natural gas liquids, crude oil or refined products. The index limits its exposure to partnerships in order to comply with applicable tax diversification rules. Securities must be publicly traded in the United States. The index is maintained by Solactive AG.

S&P MLP Index: S&P MLP Index provides investors with exposure to the leading partnerships that trade on the NYSE and NASDAQ. The index includes both master limited partnerships (MLPs) and publicly traded limited liability companies (LLCs), which have a similar legal structure to MLPs and share the same tax benefits

Bloomberg Barclays US Corporate High Yield Total Return Index: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index: ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index tracks the performance of fixed rate US dollar denominated preferred securities issued in the US domestic market.

Bloomberg Barclays EM USD Aggregate Total Return Index: The Bloomberg Barclays Emerging Markets Hard Currency Aggregate Index is a flagship hard currency Emerging Markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.

Bloomberg Barclays US Corporate Total Return Value Unhedged Index: The Bloomberg Barclays US Corporate Total Return Value Unhedged Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.

Crude Oil: Measured based on the Generic 1st ‘CL’ Future, which is the nearest crude oil future to expiration.

EBITDA: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.

Average Spread: Average spread is the average of the excess of the MLPs yield over the 10 year treasuries yield.

Enterprise Value (EV): EV is a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization.

Category: Articles

Topics: MLPs

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