MLP Monthly Report: January 2020

The January 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) Tallgrass Energy LP (TGE) entered into a definitive merger agreement with Blackstone Infrastructure Partners (Blackstone) and its affiliates, with Blackstone purchasing all remaining Class A shares of TGE for $22.45 per share, up from the previous offer of $19.50.

2) The Organization of the Petroleum Exporting Countries (OPEC) and its allies have agreed to take deeper production cuts of an additional 500,000 barrels per day (bpd), reducing total output by 1.7 million bpd, or 1.7% of global production. These cuts are effective through the first quarter of 2020. Additionally, Saudi Arabia plans to extend its voluntary cut of 400,000 bpd, taking the total production cut to 2.1 million bpd.

3) Oil prices surged to their highest levels in more than three months on concerns that geopolitical risks surrounding Iran would disrupt global oil supply. The Middle East, which accounts for around 25% of the world’s oil supply, also faces heightening geopolitical tensions.

Sources: NASDAQ, CNBC, New York Times.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, rose by 7.60% last month. The index is up by 9.08% since last December. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 9.18%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.19%), Fixed Rate Preferreds (5.01%), Emerging Market Bonds (4.88%), and Investment Grade Bonds (3.00%).1 MLP yield spreads versus 10-year Treasuries currently stand at 6.86%, higher than the long-term average of 4.62%.2 (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, rose by 5.11% last month. Since December 2018, the EV-to-EBITDA ratio has risen by approximately 11%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count increased last month to 805 rigs, rising by 3 rigs from last month’s count of 802 rigs. US production of crude oil stayed flat at 12.900 mb/d in the last week of December compared to 12.900 mb/d in November. (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

As of 12/31/2019, Tallgrass Energy LP (TGE) was a holding in the Global X MLP and Energy Infrastructure ETF (MLPX), with a 4.65% weighting.