MLP Monthly Report: June 2017

The June MLP Monthly Report can be found here, offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.


News: 1) At their May 25th meeting, OPEC and non-OPEC members (led by Russia) elected to extend their deal to limit oil production by nine months through March 2018 in an effort to support higher oil prices. 2) Kinder Morgan’s Canadian division is looking to raise $1.3 billion in an IPO in Toronto. The company is attempting to use the proceeds from IPO to fund the expansion of its Trans Mountain pipeline. 3) Energy Transfer Partners offered to wholly purchase the remaining units of PennTex Midstream Partners, adding to the firm’s midstream natural gas assets in Louisiana. 4) Williams Partners L.P. announced that they will raise $1.45 billion of debt to refinance at a lower interest rate. (Source: Reuters, Nasdaq, Williams Cos)

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, declined 4.91% last month partly due to lower oil prices. The index has gained 4.89% over the last one-year period. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.05%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.48%), Preferreds (5.42%), Emerging Market Bonds (5.30%), and REITs (3.99%).1 MLP yield spreads versus 10-year Treasuries currently stand at 4.84%, higher than the long-term average of 3.66%. (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 in May compared to April as the recent closing of the Energy Transfer and Sunoco merger created a standalone entity trading at a higher multiple. Since May 2016, the EV-to-EBITDA ratio has increased by approximately 4.3%, as oil prices, and subsequently MLP equities, have fallen from 2016 highs. (Source: Bloomberg, MLPData, company financials).

Production Output: The Baker Hughes Rig Count increased by 38 rigs compared to last month to 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 rose to 9,342 in thousands of barrels produced per day in the last week of May from 9,293 at the end of April. (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.

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