MLP Monthly Report: November 2020

Nov 18, 2020

The November 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) DTE Energy Co (DTE) plans to spin off its gas pipeline business, DTE Midstream, into a publicly traded company by mid-2021 through awarding ownership to DTE Energy shareholders in dividends. DTE Midstream is valued between $7.5 billion and $8.0 billion including debt, and is forecasted to generate around $700 million in EBITDA.

2) In yet another consolidation in the Energy sector, ConocoPhillips (COP) has agreed to buy U.S. shale oil producer Concho Resources (CXO) for $9.7 billion or $49.30 per share. In the all-stock deal, CXO shareholders will receive 1.46 shares of COP for each share held. The deal is expected to generate annual cost and capital savings of $500 million by 2022.

3) In the Solactive MLP Infrastructure Index, there were only two distribution cuts across midstream MLPs this quarter, by Energy Transfer LP (ET) and NGL Energy Partners LP (NGL). The recent recovery in the energy markets, and distribution cuts earlier in the year gave most of the midstream companies confidence to maintain distribution levels.

Sources: Reuters, CNBC, Energy Transfer, NGL Energy Partners, Solactive MLP Infrastructure Index

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 3.14% last month. The index is down by 47.88% since last October. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 16.51%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (6.10%), Fixed Rate Preferreds (4.49%), Emerging Market Bonds (4.11%), and Investment Grade Bonds (2.08%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 14.64%, higher than the long-term average of 5.54%.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, decreased by 0.70% last month. Since October 2019, the EV-to-EBITDA ratio is down by approximately 17.28%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 296 rigs, increasing by 35 rigs from last month’s count of 261 rigs. US production of crude oil decreased to 10.500 mb/d in the last week of October compared to September levels of 10.7000 mb/d. (Source: Baker Hughes & EIA)

For performance data current to the most recent month- and quarter-end, please click here

As of 10/31/2020, Energy Transfer LP (ET) was a holding in the Global X MLP ETF (MLPA), with a 8.98% weighting and Global X MLP and Energy Infrastructure ETF (MLPX), with a 4.17% weighting. NGL Energy Partners LP (NGL) was a holding in the MLPA, with a 2.05% weighting.

MLPX ETF and MLPA ETF do not have any holding in DTE Energy Co (DTE), ConocoPhillips (COP), and Concho Resources (CXO).

1. Asset class representations are as follows, MLPs, Solactive MLP Infrastructure Index; High Yield Bonds, Bloomberg Barclays US Corporate High Yield Total Return Index; Preferreds, ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, Bloomberg Barclays EM USD Aggregate Total Return Index; REITs, FTSE NAREIT All Equity REITS Index; Investment Grade Bonds, Bloomberg Barclays US Corporate Total Return Value Unhedged Index; Equities, S&P 500 Index; and Crude Oil, Generic 1st ‘CL’ Future.

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 Total Return 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.

Bloomberg Barclays EM USD Aggregate Total Return Index: The Bloomberg Barclays 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 Barclays US Corporate Total Return Index: The Bloomberg Barclays 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.

Category: Reports

Topics: MLPs

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MLP Monthly Report: November 2020

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