MLP Monthly Report: March 2018
The March MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.
1) On March 15th, the Federal Energy Regulatory Commission (FERC) announced that they would be disallowing Master Limited Partnerships (MLPs) from recovering an income tax allowance in cost of service rate contracts. MLPs had previously been allowed to recover this income tax allowance since 2005. MLPs reacted sharply, with the asset class down -5.3% that day, as measured by the Solactive MLP Infrastructure Index.
2) NuStar Energy L.P. (NS) and NuStar GP Holdings, LLC (NSH) announced NSH will be merging with NS. The roll-up will lead to the cancellation of the 2% economic general partner interest and Incentive Distribution Rights (IDRs) held by NSH. NSH unitholders were bought out with NS common units valued at a 1.7% premium to NSH’s last price. The merger is intended to lower the cost of capital of NS and create a more efficient and transparent structure.
3) EQT Corp. (EQT) announced a complex transaction involving the complete spinoff of their midstream operations into a new publicly traded entity (NewCo), and a buyout of Rice Midstream (RMP), as well as RMP’s IDRs. EQT will be an upstream focused entity, while newly created NewCo will focus solely on midstream operations. RMP will be acquired by EQT Midstream (EQM) and RMP’s IDRs will be bought out by EQT GP Holdings LP (EQGP). The midstream assets will now be housed in three separate entities, NewCo, EQGP, & EQM.
Sources: FERC, Bloomberg, NuStar Energy L.P., San Antonio Business Journal, Reuters, EQT Midstream Partners L.P.
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell -10.3% last month as MLPs were hurt by weaker sentiment surrounding the space. The index has fallen -15.7% since last February. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 8.38%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (6.14%), Emerging Market Bonds (5.81%), Fixed Rate Preferreds (5.61%), and REITs (4.32%).1 MLP yield spreads versus 10-year Treasuries currently stand at 5.51%, higher than the long-term average of 3.87%. (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 0.39% last month. Since February 2017, the EV-to-EBITDA ratio has fallen by approximately -6.24%. (Source: Bloomberg).
Crude Production: The Baker Hughes Rig Count increased last month to 978 rigs, rising by 31 rigs compared to last month’s count of 947 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 10.283 mb/d in the last week of February compared to 9.919 mb/d at the end of January. (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