MLP Monthly Report: May 2020

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.

Summary

News:

1) Certain midstream companies were forced to cut distributions this quarter due to the challenging macro environment and upstream energy sector concerns. Notable distribution cuts included those from NuStar Energy (NS), Holly Energy Partners (HEP), NGL Energy Partners (NGL), Western Midstream Partners (WES), Plains GP Holdings (PAGP), EQM Midstream Partners (EQM), Equitrans Midstream Corp (ETRN) and CNX Midstream (CNXM).

2) A number of midstream companies released Q1 earnings, with those companies providing investors a brighter outlook compared to the broader energy sector. Larger MLPs like Enterprise Product Partners (EPD) and Oneok (OKE), surpassed analyst estimates, and Kinder Morgan Inc (KMI) was in line with estimates. Certain MLPs also trimmed their capital expenditure (capex) budgets, as they factored in current commodity prices and additional rig reductions.

3) With energy companies looking for storage options amid the low oil price environment, midstream storage demand increased, helping propel MLPs to a 47% return in the month of April.

Sources: Company Press Releases, Bloomberg, Yahoo Finance.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 47% last month. The index is down by 42.88% since last April. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 15.49%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (8.05%), Emerging Market Bonds (6.64%), Fixed Rate Preferreds (3.52%), and Investment Grade Bonds (2.76%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 15.30%, higher than the long-term average of 4.98%.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 9.20% last month. Since April 2019, the EV-to-EBITDA ratio has fallen by approximately 10.78%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count reduced to 465 rigs, decreasing by 263 rigs from last month’s count of 728 rings. US production of crude oil reduced to 12.100 mb/d in the last week of April compared to 13.000 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 4/30/2020, NuStar Energy LP (NS) was a holding in the Global X MLP ETF (MLPA), with a 3.20% weighting and Global X MLP and Energy Infrastructure ETF (MLPX), with a 0.49% weighting, Holly Energy Partners LP (HEP) was a holding in the MLPA ETF, with a 3.02% weighting and MLPX ETF, with a 0.27% weighting, NGL Energy Partners LP (NGL) was a holding in the MLPA ETF, with a 3.32% ,Western Midstream Partners LP (WES) was a holding in the MLPA ETF, with a 4.01% weighting and MLPX ETF, with a 0.75% weighting, Plains GP Holdings LP (PAGP) was a holding in MLPX ETF, with a 3.80% weighting, EQM Midstream Partners LP (EQM) was a holding in the MLPA ETF, with a 6.87% weighting and MLPX ETF, with a 0.69% weighting, Equitrans Midstream Corp (ETRN) was a holding in the MLPX ETF, with a 4.49% weighting, Enterprise Product Partners LP (EPD) was a holding in the MLPA ETF, with a 10.41% weighting and MLPX ETF, with a 4.63% weighting, OneOK Inc (OKE) was a holding in the MLPX ETF, with a 4.80% weighting, Kinder Morgan Inc (KMI) was a holding in the MLPX ETF, with a 9.38% weighting.

MLPX ETF and MLPA ETF do not have any holding in CNX Midstream Partners LP (CNXM).

Footnotes

1. Asset class representations are as follows, MLPs, Solactive MLP Infrastructure Index; High Yield Bonds, Bloomberg Barclays US Corporate High Yield Index; Preferreds, ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, J.P. Morgan EMBI Global Core Index; Investment Grade Bonds, iBoxx USD Liquid Investment Grade Index;

2. MLPs are represented by the S&P MLP Index.

DEFINITIONS

Solactive MLP Infrastructure Index: The Solactive MLP Infrastructure Index is intended to give investors a means of tracking the performance of the energy infrastructure MLP asset class in the United States. The index is composed of Midstream MLPs engaged in the transportation, storage, and processing of natural resources.

The Solactive MLP & Energy Infrastructure Index: The Solactive MLP & Energy Infrastructure Index is intended to give investors a means of tracking the performance of MLPs and energy infrastructure corporations. Midstream energy infrastructure MLPs and corporations principally own and operate assets used in energy logistics, including, but not limited to, pipelines, storage facilities and other assets used in transporting, storing, gathering, and processing natural gas, natural gas liquids, crude oil or refined products. The index limits its exposure to partnerships in order to comply with applicable tax diversification rules. Securities must be publicly traded in the United States. The index is maintained by Solactive AG.

S&P MLP Index: S&P MLP Index provides investors with exposure to the leading partnerships that trade on the NYSE and NASDAQ. The index includes both master limited partnerships (MLPs) and publicly traded limited liability companies (LLCs), which have a similar legal structure to MLPs and share the same tax benefits

Bloomberg Barclays US Corporate High Yield Index: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index: ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index tracks the performance of fixed rate US dollar denominated preferred securities issued in the US domestic market.

J.P. Morgan EMBI Global Core Index: J.P. Morgan EMBI Global Core Index is a broad, diverse U.S. dollar-denominated emerging markets debt benchmark that tracks the total return of actively traded external debt instruments in emerging market countries.

iBoxx USD Liquid Investment Grade Index: The iBoxx USD Liquid Investment Grade index measures the performance of 600 highly liquid investment grade corporate bonds.

Crude Oil: Measured based on the Generic 1st ‘CL’ Future, which is the nearest crude oil future to expiration.

EBITDA: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments.

Average Spread: Average spread is the average of the excess of the MLPs yield over the 10 year treasuries yield.

Enterprise Value (EV): EV is a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization.

MLP Monthly Report: May 2020

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