MLP Monthly Report: March 2020

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

Summary

News:

1) Equitrans Midstream Corporation (ETRN) will acquire all the outstanding public common units of EQM Midstream Partners, LP (EQM), at a 3% premium to the 20 day volume weighted average price as of February 26, 2020. This will simplify the structure to a single C-Corp post-merger, which is expected to close by mid-2020.

2) Shell Midstream Partners, L.P. (SHLX) has entered into an agreement with its general partner (GP) to eliminate all the incentive distribution rights (IDRs) and GP economic interest with it. In exchange for the IDRs, SHLX issued new common units valued at $2.7 billion based on the closing price as of February 28, 2020.

3) The Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, failed to reach an agreement to further deepen the production cut to combat falling oil prices. This has escalated to a price war between Saudi Arabia and Russia, but it’s possible a production quota deal could be reached in the future.

Sources: Equitrans Midstream Corporation, Shell Midstream Partners, L.P., Reuters, CNBC.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell by 15.78% last month. The index is down by 23.61% since last February. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 11.97%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (6.23%), Fixed Rate Preferreds (5.10%), Emerging Market Bonds (4.93%), and Investment Grade Bonds (3.60%).1 MLP yield spreads versus 10-year Treasuries currently stand at 9.87%, higher than the long-term average of 4.71%.2 (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, fell by 0.51% last month. Since February 2019, the EV-to-EBITDA ratio has fallen by approximately 4.58%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count remain unchanged at 790 rigs from last month’s count. US production of crude oil increased to 13.100 mb/d in the last week of February compared to 12.900 mb/d in 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

As of 2/29/2020, EQM Midstream Partners, LP (EQM) was a holding in the Global X MLP ETF (MLPA), with a 4.03% weighting and Global X MLP and Energy Infrastructure ETF (MLPX), with a 0.42% weighting, Shell Midstream Partners, L.P. (SHLX) was a holding in the MLPA ETF, with a 5.06% weighting and Global X MLPX ETF, with a 0.61% weighting, Equitrans Midstream Corporation (ETRN) was a holding in the MLPX ETF, with a 2.47% weighting.