MLP Monthly Report: May 2022
The May MLP Monthly Report offers information on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.
For analysis into the midstream space, please see the latest quarterly MLP Insights.
1) OPEC+ decided to raise production targets by 432,000 barrels per day (bpd) in May. However, OPEC oil output in April increased by just 40,000 bpd from March and was short of the 254,000 increase announced under the plan as reductions in supply in Libya and Nigeria offset increases in supply in Saudi Arabia and other top producers.
2) Delek Logistics Partners, LP (DKL) has entered an agreement to acquire 3Bear Delaware Holding – NM, LLC, an indirect subsidiary of 3Bear Energy, LLC (3Bear) for USD 624.7 million in cash. The deal is expected to increase DKL’s revenue from third parties, further diversify its customer and product mix and expand its presence in the Delaware Basin.
3) Brent crude oil prices remained volatile as China’s COVID-19-related lockdowns are expected to hurt near-term demand while the European Union (EU) is working on the sixth round of sanctions against Russia, which is expected to include a ban on Russian oil imports by the end of this year. U.S. crude inventories unexpectedly rose by 1,300,000 barrels for the week, compared to an expected decline of 800,000 barrels.
Sources: Foeger, L. (2018, December 7). OPEC oil output in April barely rises as African outages weigh-survey. Reuters.; Delek Logistics. (2022, April 11). Delek Logistics Partners, LP announces acquisition of 3Bear Energy increasing its prominent position in the Permian Basin [Press release].; Williams, N. (2022, May 3). Oil slides as China lockdowns outweigh proposed EU Russia oil ban. Reuters. U.S. Energy Information Administration. (2022, April 8). Highlights: Weekly petroleum status report.
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 0.29% last month. The index increased by 24.46% since last April. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 7.32%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (7.05%), Emerging Market Bonds (6.31%), Fixed Rate Preferreds (5.69%) and Investment Grade Bonds (4.31%).1 MLP yield spreads versus 10-year Treasuries currently stand at 4.36%, lower than the long-term average of 5.74%.2 (Sources: Bloomberg; Board of Governors of the Federal Reserve System. (2022, April 30). Preformatted package: Treasury constant maturities [Data set]. Data Download Program.)
Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, decreased by 1.11% last month. Since April 2021, the EV-to-EBITDA ratio is down by approximately 2.47%. (Source: Bloomberg)
Crude Production: The Baker Hughes Rig Count increased to 698 rigs, increasing by 28 rigs from last month’s count of 670 rigs. U.S. production of crude oil increased to 11.900 mb/d in the last week of April compared to March levels of 11.700 mb/d. (Sources: Baker Hughes. (2022, May 6). North America rig count.; U.S. Energy Information Administration. (2022, May 4). Petroleum and other liquids.)
For performance data current to the most recent month- and quarter-end, please click here.
As of 04/30/2022, Delek Logistics Partners, LP (DKL) was a holding in the Global X MLPA ETF (MLPA) with a 3.98% weighting.
MLPA ETF does not have any holdings in 3Bear Energy, LLC.
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.
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 US Corporate High Yield Total Return Index: The Bloomberg 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 Bloomberg EM country definition, are excluded.
ICE BofA Fixed Rate Preferred Securities Index: The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of fixed rate US dollar denominated preferred securities issued in the US domestic market.
Bloomberg EM USD Aggregate Total Return Index: The Bloomberg Emerging Markets Hard Currency Aggregate Index is a flagship hard currency Emerging Markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.
Bloomberg US Corporate Total Return Index: The Bloomberg US Corporate Total Return Value Unhedged Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.
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.