MLP Monthly Report: November 2021

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).

Footnotes

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.

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 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 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.

Endnotes:

1. Asset class representations are as follows, MLPs, Solactive MLP Infrastructure Index; High Yield Bonds, Bloomberg US Corporate High Yield Total Return Index; Preferreds, ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, Bloomberg EM USD Aggregate Total Return Index; REITs, FTSE NAREIT All Equity REITS Index; Investment Grade Bonds, Bloomberg 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.

MLP Monthly Report: November 2021

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