MLP Monthly Report: July 2019

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.

Summary

News:

1) News emerged that private company, Blue Racer Midstream, may be planning to launch an initial public offering (IPO), in which it could be valued at $2.5 billion. The potential for publicly listing the firm has increased after the market’s response to the Rattler Midstream, LP (RTLR) IPO last month which has been the biggest energy IPO of the year.

2) Occidental Petroleum Corp. (OXY) may be working with a financial advisor to seek a potential buyer for Western Midstream Partners (WES), the pipeline operator that OXY is set to acquire through its pending takeover of Anadarko Petroleum Corp. Anadarko owns a 55.5% stake in WES. OXY had stated it would be open to selling Western Midstream after the takeover of Anadarko.

3) The Organization of the Petroleum Exporting Countries (OPEC) has preliminarily agreed to extend oil production cuts for another nine months, until March 2020. OPEC has also entered an agreement with Russia, a non-member, but an important outside ally, to secure its cooperation in the context of the extended production cuts. The decision comes on the back of weaker oil prices, trade tensions, and geopolitical issues.

Sources: Bloomberg, CNN

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell by -2.7% last month. The index is up 2.15% since last June. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.92%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.87%), Emerging Market Bonds (5.63%), Fixed Rate Preferreds (5.45%), and Investment Grade Bonds (3.30%).1 MLP yield spreads versus 10-year Treasuries currently stand at 5.82%, higher than the long-term average of 4.47%.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, increased 1.6% last month. Since June 2018, the EV-to-EBITDA ratio has fallen by approximately -22%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count fell last month to 967 rigs, falling by 17 rigs from last month’s count of 984 rigs. The rig count has more than doubled since its recent low point in May 2016 of 404 rigs. US production of crude oil fell to 12.200 mb/d in the last week of June compared to 12.200 mb/d in May. (Source: Baker Hughes & EIA)

mlp performance

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 06/30/2019, Western Midstream Partners (WES) was a holding in the the Global X MLP ETF (MLPA), with a 4.82% weighting and the Global X MLP and Energy Infrastructure ETF (MLPX), with a 1.28% weighting.

MLPX ETF and MLPA ETF do not have any holding in Occidental Petroleum Corp. (OXY) and Rattler Midstream, LP (RTLR).