MLP Monthly Report: July 2017
The July MLP Monthly Report can be found here, offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.
- On June 19th, EQT Corporation announced the acquisition of Rice Energy Inc. for $6.5 billion, making EQT the largest natural gas producer in the U.S. The transaction is expected to close by Q4 2017. Eventually, EQT Corp is expected to drop Rice’s midstream assets down to its midstream LP, EQT Midstream Partners.
- On June 30th, ONEOK Inc. (OKE) officially closed its roll-up merger with ONEOK Partners LP (OKS). OKE bought out the remaining units of OKS in a stock-for-stock transaction. This roll-up eliminates OKS’s cumbersome Incentive Distribution Rights payments and is expected to lower the combined company’s cost of capital.
- Oil markets have been bearish despite OPEC’s extension of production quotas at their May 25th meeting. Oil prices averaged $45.19 a barrel in June compared to $48.53 a barrel in May, representing a 6.9% drop. Lower oil prices in June are attributable to higher than expected U.S. inventory levels as well as rising production in Libya and Nigeria.
Sources: EQT Corporation, ONEOK Inc, Reuters, Bloomberg
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, declined 0.38% last month largely due to lower oil prices. The index has fallen 0.66% over the last one-year period. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 7.07%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.62%), Emerging Market Bonds (5.43%), Preferreds (5.40%), , and REITs (4.06%).1 MLP yield spreads versus 10-year Treasuries currently stand at 4.76%, higher than the long-term average of 3.68%. (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, fell marginally in June compared to May as falling oil prices weighed on MLP unit prices. Since June 2016, the EV-to-EBITDA ratio has increased by approximately 9.53%, as oil prices, and subsequently MLP equities, have risen during this time period. (Source: Bloomberg, MLPData, company financials).
Production Output: The Baker Hughes Rig Count rose by 32 rigs to 940 rigs compared to last month’s count of 908 rigs. The rig count has more than doubled since its recent low point in May 2016 of 404 rigs. US production of crude oil actually fell to 9,338 in thousands of barrels produced per day in the last week of June from 9,342 at the end of May as lower oil prices may have weighed on US crude production. (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