MLP Monthly Report: December 2020
The December MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.
1) Organization of the Petroleum Exporting Countries and Russia (OPEC+) has planned to extend its production cut program, withholding 7.2 million barrels per day (bpd) or 7% of the global demand until March 2021. OPEC+ has agreed to meet every month beyond January 2021 to decide on production output, with monthly increases not exceeding 500,000 bpd.
2) Williams Companies Inc. (WMB) and Chesapeake reached an agreement in which the former will reduce the fees it charges on some lines. As per the agreement, Chesapeake will pay all pre-petition and past dues related to midstream expenses as per the existing contracts. Chesapeake also agreed not to reject William’s gathering agreements in Eagle, Ford, Marcellus, or Mid-Con.
3) The sentiment for oil markets gained momentum in November as markets expected positive news on the Covid-19 vaccine to fuel increased demand, further helped by the weakening US dollar. In addition, small cap value stocks delivered outperformance versus large cap growth stocks and the markets underwent a cyclical rotation. This bolstered MLPs to increase 22% over the period, as measured by the Solactive MLP Infrastructure Index.
Sources: Reuters, Business Insider, Solactive MLP Infrastructure Index
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 22.36% last month. The index is down by 32.34% since last November. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 12.81%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.34%), Fixed Rate Preferreds (4.30%), Emerging Market Bonds (3.74%), and Investment Grade Bonds (1.85%).1 MLP yield spreads versus 10-year Treasuries currently stand at 11.21%, higher than the long-term average of 5.59%.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, increased by 4.81% last month. Since November 2019, the EV-to-EBITDA ratio is down by approximately 10.14%. (Source: Bloomberg)
Crude Production: The Baker Hughes Rig Count increased to 320 rigs, increasing by 24 rigs from last month’s count of 296 rigs. US production of crude oil increased to 11.100 mb/d in the last week of November compared to October levels of 10.500 mb/d. (Source: Baker Hughes & EIA)
For performance data current to the most recent month- and quarter-end, please click here.
As of 11/30/2020, Williams Companies Inc. (WMB) was a holding in the Global X MLP and Energy Infrastructure ETF (MLPX), with a 7.52% weighting.