MLP Monthly Report: June 2020

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.

Summary

News:

1) The Organization of the Petroleum Exporting Countries and its allies (OPEC+) extended their production cut agreement through the end of July. The agreement calls for output cuts of 9.6 million bp/d. This extension takes roughly 10% of global oil production off the market.

2) WTI crude oil spiked 88% in the month of May from $19 to $35. The ease in the global glut, following the OPEC+ deal, and increase in global demand due to easing lockdown restrictions helped prices push higher.

3) Summit Midstream Partners, LP (SMLP) and Energy Capital Partners II (ECP) announced a buy-in of Summit Midstream Partners, LLC, the owner of SMLP’s general partner (GP). The deal was valued at $35 million cash along with warrants of 10 million SMLP common units, amongst other financial terms of the transaction.

Sources: Bloomberg, Business Insider, Forbes, Summit Midstream Partners LP.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 8% last month. The index is down by 38% since last May. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 14.03%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (7.02%), Emerging Market Bonds (5.73%), Fixed Rate Preferreds (3.06%), and Investment Grade Bonds (2.40%).1 MLP yield spreads versus 10-year Treasuries currently stand at 13.79%, higher than the long-term average of 5.07%.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, increased by 5.56% last month. Since May 2019, the EV-to-EBITDA ratio is down by approximately 8.58%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count reduced to 301 rigs, decreasing by 164 rigs from last month’s count of 465 rigs. US production of crude oil reduced to 11.200 mb/d in the last week of May compared to 12.100 mb/d in 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

MLPX ETF and MLPA ETF do not have any holding in Summit Midstream Partners LP (SMLP) and Energy Capital Partners II (ECP).