MLP Monthly Report: July 2020
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.
1) Warren Buffett’s Berkshire Hathaway Inc. (BRK) reached an agreement with Dominion Energy Inc. (D) to acquire its natural gas transmission and storage assets for a total of $9.7 billion. The deal, expected to close in Q4 2020, includes debt of $5.7 billion on the natural gas assets. Dominion Energy also announced it will abandon its Atlantic Coast Pipeline project.
2) An institutional investor consortium, led by Global Infrastructure Partners, Brookfield Asset Management (BAM) and other private-equity firms, invested $10 billion in gas pipelines operated by Abu Dhabi National Oil Company (ADNOC). The consortium will acquire a 49% stake in ADNOC Gas Pipeline Assets, a newly formed subsidiary. ANDOC will retain the remaining 51% majority stake and continue to manage its operations.
3) The Organization of the Petroleum Exporting Countries’ (OPEC’s) production hit its lowest level since May 1991 due to its production quota agreement in place. OPEC is expected to begin easing these cuts by 2 million bp/d in August, which would bring collective reductions to 7.7 million bpd in August as coronavirus lockdowns ease and demand begins to rise.
Sources: Bloomberg, Reuters, CNBC, Oilprice.com, Dominion Energy Inc.
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, decreased 8% last month. The index is down by 44.43% since last June. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 15.17%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (7.02%), Fixed Rate Preferreds (5.07%), Emerging Market Bonds (4.67%), and Investment Grade Bonds (2.19%).1 MLP yield spreads versus 10-year Treasuries currently stand at 14.54%, higher than the long-term average of 5.16%.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, decreased by -0.80% last month. Since June 2019, the EV-to-EBITDA ratio is down by approximately 10.29%. (Source: Bloomberg)
Crude Production: The Baker Hughes Rig Count reduced to 265 rigs, decreasing by 36 rigs from last month’s count of 301 rigs. US production of crude oil reduced to 11.000 mb/d in the last week of June compared to 11.200 mb/d in May. (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
MLPX ETF and MLPA ETF do not have any holdings in Berkshire Hathaway Inc (BRK), Dominion Energy Inc (D) and Abu Dhabi National Oil Company (ADNOC).