MLP Monthly Report: May 2019
The May MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.
1) Anadarko Petroleum Corporation (APC) received a higher takeover offer of $38 billion from Occidental Petroleum Corporation (OXY). APC agreed on a $33 billion deal to sell its business to Chevron Corporation (CVX) on April 12. If APC officially declares OXY’s offer to be superior, CVX can either make a new offer or take the $1 billion break-up fee and abandon the deal. APC is the sponsor of Western Midstream Partners, LP (WES).
2) Blackstone Group, LP (BX) announced it would convert from a publicly traded partnership to a corporation, effective July 1, 2019. The C-Corp structure may remove certain ownership restrictions on partnership units like BX and enable a wider investor base to purchase their equity.
3) Apollo Global Management, LLC (APO) also announced a conversion from a partnership to a corporation by Q3 2019. The C-Corp structure is expected to simplify APO’s structure and broaden its shareholder base. The additional tax burden for C-Corps has reduced with the lowering of the headline U.S. corporate tax rate to 21% from 35%, effective last year. This has become an incentive for many partnerships to convert to C-Corps.
Sources: Bloomberg, Occidental Petroleum Corporation, Blackstone Group, LP, Reuters, Apollo Global Management, LLC.
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell by -1.34% last month. The index is up 2.54% since last April. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 8.07%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (6.12%), Emerging Market Bonds (6.10%), Fixed Rate Preferreds (5.61%), and Investment Grade Bonds (3.70%).1 MLP yield spreads versus 10-year Treasuries currently stand at 5.37%, higher than the long-term average of 4.44%.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 -8% last month. Since April 2018, the EV-to-EBITDA ratio has fallen by approximately -21%. (Source: Bloomberg).
Crude Production: The Baker Hughes Rig Count fell last month to 991 rigs, falling by 15 rigs from last month’s count of 1006 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 12.300 mb/d in the last week of April compared to 12.200 mb/d in March. (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 04/30/2019, Western Midstream Partners, LP (WES) was a holding in the the Global X MLP ETF (MLPA), with a 5.00% weighting.
Global X MLP and Energy Infrastructure ETF (MLPX) and Global X MLP ETF (MLPA) do not have any holding in Anadarko Petroleum Corporation (APC), Occidental Petroleum Corporation (OXY), Chevron Corporation (CVX), Blackstone Group, LP (BX) and Apollo Global Management, LLC (APO).