MLP Monthly Report: November 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).