MLP Monthly Report: July 2022
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.
The latest quarterly MLP Insights piece providing analysis into the midstream space can be found here as well.
1) OPEC+ sticks to its planned oil output hike of 648,000 bpd in August and averted discussing its production plans for September even as oil prices soared due to tight global supplies. The alliance is struggling to meet its production target with Nigeria and Angola falling short of its quota, and Russian oil production hindered by sanctions.
2) Williams (WMB) reached a final investment decision on its clean energy project, the Louisiana Energy Gateway (LEG), which will bring 1.8 Bcf/d of natural gas produced in the Haynesville basin for delivery. This deal is expected to further decarbonize the natural gas value chain through investing in carbon capture and storage infrastructure.
3) Targa Resources Corp. (TRGP) and Lucid Energy Group, leading privately held natural gas processors in the Permian Basin, have entered into a definitive agreement to acquire Lucid Energy Delaware for $3.55 billion in cash. The acquisition gives a footing to TRGP in the Delaware Basin in increasing its size and scale.
Sources: Dahan, M. E., Ghaddar, A., & Lawer, A. (2022, June 30). OPEC+ sticks to oil output policy, avoids debate on September plans. Reuters.; The Associated Press. (2022, June 30). OPEC+ nations to boost oil production, but not enough to ease high gas prices. The Oregonian.; Williams Cos Inc. (2022, June 29). Williams reaches final investment decision on Louisiana energy gateway project [Press release].; Targa Resources Corp. (2022, June 16). Targa Resources Corp. to acquire Lucid Energy from Riverstone holdings and Goldman Sachs Asset Management for $3.55bn; provides updated 2022 standalone financial outlook.
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, decreased 13.42% last month. The index increased by 3.95% since last June. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 8.11%. MLP yields remained higher than the broad market benchmarks for Emerging Market Bonds (7.18%), Fixed Rate Preferreds (6.47%) and Investment Grade Bonds (4.71%) and lower than the High Yield Bonds (8.91%).1 MLP yield spreads versus 10-year Treasuries currently stand at 5.11%, lower than the long-term average of 5.72%.2 (Sources: Bloomberg; Board of Governors of the Federal Reserve System. (2022, June 30). Preformatted package: Treasury constant maturities [Data set]. Data Download Program.)
Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, decreased by 7.21% last month. Since June 2021, the EV-to-EBITDA ratio is down by approximately 5.00%. (Source: Bloomberg)
Crude Production: The Baker Hughes Rig Count increased to 753 rigs, increasing by 26 rigs from last month’s count of 727 rigs. US production of crude oil increased to 12.1 mb/d in the last week of June compared to May levels of 11.900 mb/d. (Sources: Baker Hughes. (2022, July 14). North America rig count.; U.S. Energy Information Administration. (2022, July 14). Petroleum and other liquids.)
For performance data current to the most recent month- and quarter-end, please click here.
As of 6/30/2022 Global X MLP ETF (MLPA) does not have a holding in Williams Cos Inc. (WMB), Lucid Energy Group and Targa Resources Corp. (TRGP).
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.