MLP Monthly Report: February 2021

The February 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) MPLX LP (MPLX) stated on its earnings call that it may use some of its excess cash flow to buy back MPLX’s common units since they view the units as being undervalued.

2) There were no distribution cuts across midstream MLPs this distribution season, as measured by the Solactive MLP & Energy Infrastructure Index. A recovery in the energy markets gave midstream companies confidence to maintain distribution levels.

3) The crude markets opened 2021 with a price rally as WTI crude oil rose 8% in the month of January from $48 to $52. The price rally was supported by higher demand expectations and the recent Saudi Arabia’s voluntarily supply cut of 1 million bpd.

Sources: Seeking Alpha, Solactive MLP & Energy Infrastructure Index, IEA, Bloomberg

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 5.49% last month. The index is down by 27.54% since last January. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 11.08%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.97%), Fixed Rate Preferreds (4.12%), Emerging Market Bonds (3.64%), and Investment Grade Bonds (1.91%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 9.62%, higher than the long-term average of 5.67%.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 4.17% last month. Since January 2020, the EV-to-EBITDA ratio is down by approximately 8.65%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 384 rigs, increasing by 36 rigs from last month’s count of 348 rigs. US production of crude oil decreased to 10.900 mb/d in the last week of January compared to December levels of 11.000 mb/d. (Source: Baker Hughes & EIA)

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

As of 1/31/2021, MPLX, LP (MPLX) was a holding in the Global X MLP ETF (MLPA) with an 8.33% weighting and the Global X MLP and Energy Infrastructure ETF (MLPX), with a 3.51% weighting.

Footnotes

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 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.

Endnotes:

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.

MLP Monthly Report: February 2021

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