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MLP Monthly Report: November 2021

Nov 12, 2021

View all Rohan Reddy's ArticlesRohan ReddyRohan Reddy

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.

The latest quarterly MLP Insights piece providing analysis into the midstream space can be found here as well.

Summary

News:

1) Phillips 66 (PSX) announced plans to acquire the remaining units of Phillips 66 Partners (PSXP) it does not own for $3.4 billion. The all-stock deal is expected to close in the first quarter of 2022 in aim to simplify its governance and corporate structure.

2) Crestwood Equity Partners LP (CEQP) has entered into a definitive merger agreement to acquire Oasis Midstream Partners LP (OMP) in an equity and cash transaction for approximately $1.8 billion including the assumption of debt. The merger is expected to enhance its competitive position in the Williston and Delaware Basins and provide an opportunity to realize approximately $45 million in commercial and cost reduction synergies.

3) OPEC+ has decided to stick to 400,000 barrels per day (bpd) output each month. The decision has led to rising oil prices, with crude hitting the highest levels since 2014. With 2 million barrels of additional production added to the market since August 2021, the cartel has adopted a conservative approach, as it expects a seasonal drop in demand for oil in the first and fourth quarters of the year.

Sources:  Phillips 66 Partners LP, Crestwood Equity Partners LP, CNBC.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 5.30% last month. The index has increased by 84.08% since last October. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.87%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.79%), Fixed Rate Preferreds (4.11%), Emerging Market Bonds (4.33%), and Investment Grade Bonds (2.26%).1 MLP yield spreads versus 10-year Treasuries currently stand at 5.88%, higher than the long-term average of 5.75%.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 1.32% last month. Since October 2020, the EV-to-EBITDA ratio is up by approximately 10.77%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 544 rigs, increasing by 23 rigs from last month’s count of 521 rigs. US production of crude oil increased to 11.500 mb/d in the last week of October compared to September levels of 11.100 mb/d. (Source: Baker Hughes & EIA)

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

As of 10/31/2021, Phillips 66 Partners, L.P. (PSXP) was a holding in the Global X MLPA ETF (MLPA) with a 4.46 % weighting and MLPX ETF with a 0.76% weighting. Crestwood Equity Partners, L.P. (CEQP) was a holding in the Global X MLPA ETF (MLPA) with a 4.73 % weighting. Oasis Midstream Partners, L.P. (OMP) was a holding in the Global X MLPA ETF (MLPA) with a 3.00% weighting.

MLPX ETF and MLPA ETF do not have any holding in Phillips 66 (PSX).

Category: Reports

Topics: Income, MLPs

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Investing involves risk, including possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in securities of MLPs involve risk that differ from investments in common stock including risks related to limited control and limited rights to vote on matters affecting the MLP. MLP common units and other equity securities can be affected by macro economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). The Fund invests in the energy industry, which entails significant risk and volatility. In addition, the Fund is non-diversified which represents a heightened risk to investors. Furthermore, the Fund invests in small and mid-capitalization companies, which pose greater risks than large companies. MLPA has a different and more complex tax structure than traditional ETFs and investors should consider carefully the significant tax implications of an investment in the Fund. The Funds are non-diversified. Current and future holdings are subject to risk.

MLPA is taxed as a regular corporation for federal income tax purposes, which differs from most investment companies. Due to its investment in MLPs, the fund will be obligated to pay applicable federal and state corporate income taxes on its taxable income as opposed to most other investment companies. The fund expects that a portion of the distributions it receives from MLPs may be treated as tax-deferred return of capital. The amount of taxes currently paid by the fund will vary depending on the amount of income and gains derived from MLP interests and such taxes will reduce an investor’s return from an investment in the fund. The fund will accrue deferred income taxes for any future tax liability associated certain MLP interests. Upon the sale of an MLP security, the fund may be liable for previously deferred taxes which may increase expenses and lower the fund’s NAV. The potential tax benefits from investing in MLPs depend on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund’s value. The index however is calculated without any deductions for taxes. As a result, the Fund’s after tax performance could differ significantly from the index even if the pretax performance of the Fund and the performance of the index are closely correlated.

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