MLP Monthly Report: June 2018

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.



1) Kinder Morgan, Inc. (KMI) announced the sale of their Trans Mountain Pipeline System and the expansion project (TMEP) to the Canadian government for C$4.5 billion ($3.5 billion).  The government has agreed to fund the resumption of the planning and construction work of TMEP and it would also attempt to eventually seek a new buyer.

2) CVR Energy, Inc. (CVI) and Kimbell Royalty Partners (KRP) announced transactions that could lead to these entities shifting their families to the C-Corp structure.  CVI made a stock offer to unit holders of its subsidiary, CVR Refining, L.P. (CVRR).  If fully exercised, CVI and its affiliates would own a 95% stake in CVR Refining, which would give CVI the right to buy out the remaining units of CVRR.  Kimbell Royalty Partners (KRP) also announced its intention to change its pass-through partnership tax status to a taxable entity, citing access to a larger investor base.

3) Midland crude discounts relative to the Cushing benchmark have widened due to infrastructure constraints in the Permian Basin, pushing the Midland-Cushing spread to -$12.75 in May.  Drillers’ inability to transport oil out of the Permian Basin have created challenges, leading to the Permian price discount.  The latest project to come online in that region was Enterprise Product Partners (EPD)’s Midland to Sealy pipeline with capacity of 575k mb/d. Additional capacity is scheduled to come online in the second half of 2019.

Sources: Kinder Morgan, Inc., Reuters, CNBC, CVR Energy, Inc., Kimbell Royalty Partners, MarketRealist, Oil & Gas 360® and RBN Energy, LLC.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, rose 4.3% last month as MLPs continued to rebound off the March bottom. The index has fallen -9.6% since last May. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 8.05%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (6.42%), Emerging Market Bonds (6.36%), Fixed Rate Preferreds (5.70%), and REITs (4.09%).1  MLP yield spreads versus 10-year Treasuries currently stand at 5.22%, higher than the long-term average of 3.94%. (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, rose 1.63% last month. Since May 2017, the EV-to-EBITDA ratio has fallen by approximately -5.99%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count increased last month to 1059 rigs, rising by 38 rigs compared to last month’s count of 1021 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 10.769 mb/d in the last week of May compared to 10.619 mb/d 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