MLP Monthly Report: January 2022

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.

The latest quarterly MLP Insights piece providing analysis into the midstream space can be found here as well.

Summary

News:

1) Enterprise Products Partners LP (EPD) has entered into an agreement to acquire Navitas Midstream Partners LLC for $3.25 billion in cash from an affiliate of Warburg Pincus LLC. The acquisition is expected to provide an entry point to Enterprise’s natural gas processing and natural gas liquids (NGL) business in the Midland Basin, one of the most economic and productive crude oil regions in the U.S.

2) OPEC+ agreed to maintain its existing plan to raise oil output by 400,000 barrels per day (bpd) in February. With oil prices continuing to trend upward, OPEC+ decided to move ahead with its policy to scale back its production quotas.

3) Oil prices rose at the start of the year as OPEC+ member, Kazakhstan, faced disruptions in oil production amid anti-government unrest in the country. Kazakhstan is a major oil producer with an output of nearly 1.6 million bpd in recent months. Oil prices also rose as production was affected in Libya due to maintenance and oilfield shutdowns.

Sources: Enterprise Products Partners LP (EPD), CNBC, Reuters.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 4.23% last month. The index increased by 40.69% since last December. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 8.44%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.86%), Emerging Market Bonds (4.33%), Fixed Rate Preferreds (4.18%) and Investment Grade Bonds (2.36%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 6.45%, higher than the long-term average of 5.76%.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 1.73% last month. Since December 2020, the EV-to-EBITDA ratio is up by approximately 3.34%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 586 rigs, increasing by 17 rigs from last month’s count of 569 rigs. US production of crude oil increased to 11.800 mb/d in the last week of December compared to November levels of 11.600 mb/d. (Source: Baker Hughes & EIA)

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

As of 12/31/2021, Enterprise Products Partners LP (EPD) was a holding in the Global X MLPA ETF (MLPA) with a 10.11% weighting and MLPX ETF with a 4.58% weighting.

MLPA ETF and MLPX ETF do not have any holdings in Navitas Midstream Partners LLC and Warburg Pincus LLC.

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.

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 US Corporate High Yield Total Return Index: The Bloomberg 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 Bloomberg EM country definition, are excluded.

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

Bloomberg EM USD Aggregate Total Return Index: The Bloomberg 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 US Corporate Total Return Index: The Bloomberg 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 US Corporate High Yield Total Return Index; Preferreds, ICE BofA Fixed Rate Preferred Securities Index; Emerging Market Bonds, Bloomberg EM USD Aggregate Total Return Index; REITs, FTSE NAREIT All Equity REITS Index; Investment Grade Bonds, Bloomberg 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: January 2022

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