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.
1) In its monthly production output meeting, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to keep the output mostly steady in February. Saudi Arabia surprised everyone with its plans to voluntarily cut its oil output by 1 million barrels per day (bpd) from February through March. Russia & Kazakhstan are permitted to raise production modestly by a combined 75,000 bpd.
2) TC Energy Corp (TRP) announced TC Pipelines, LP (TCP) agreed to its plan to acquire all outstanding common units of TCP that it does not own in an all-stock offer by TRP. The offer represents a 19.5% premium to the closing price as of October 2, 2020, the original offer date. The deal is expected to complete by late first quarter or early second quarter of 2021.
3) Oil prices finished the 2020 year down -29.6%, falling from $61 to $49. The impact of the COVID-19 pandemic significantly affected global demand through much of 2020, but economic re-openings added momentum towards the end of 2020.
Sources: Reuters, CNBC, Yahoo finance
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 2.38% last month. The index is down by 35.62% since last December. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 12.23%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.97%), Fixed Rate Preferreds (4.07%), Emerging Market Bonds (3.56%), and Investment Grade Bonds (1.79%).1 MLP yield spreads versus 10-year Treasuries currently stand at 9.98%, higher than the long-term average of 5.64%.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 0.78% last month. Since December 2019, the EV-to-EBITDA ratio is down by approximately 15.34%. (Source: Bloomberg)
Crude Production: The Baker Hughes Rig Count increased to 348 rigs, increasing by 28 rigs from last month’s count of 320 rigs. US production of crude oil decreased to 11.000 mb/d in the last week of December compared to November levels of 11.100 mb/d. (Source: Baker Hughes & EIA)
For performance data current to the most recent month- and quarter-end, please click here
As of 12/31/2020, TC Pipelines, LP (TCP) was a holding in the Global X MLP ETF (MLPA) with a 4.28% weighting and the Global X MLP and Energy Infrastructure ETF (MLPX), with a 0.84% weighting. TC Energy Corp (TRP) was a holding in the MLPX ETF, with a 7.92% weighting.