MLP Monthly Report: October 2017

The October MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.



1) Dropdowns: Marathon Petroleum Corp (MPC) and Phillips 66 (PSX) announced plans to drop down assets to their respective MLPs worth over $3 billion. Marathon Petroleum Corp (MPC) will be divesting its ownership in certain pipelines and storage facilities for $1.05 billion to MPLX LP (MPLX). In addition, Phillips 66 (PSX), will drop down $2.4 billion in assets, including its 25% interest in the Bakken Pipeline, to Phillips 66 Partners (PSXP).

2) Energy Transfer Partners (ETP): ETP announced they were raising $2.25 Billion worth of debt via a Senior Notes offering. The bond sale proceeds will be used primarily for refinancing purposes.

3) Oil Production: Production estimates in the Eagle Ford region were revised downward last month as the effects of Hurricane Harvey are likely weighing on crude output projections in that part of the country. Production data showed crude output experienced a sharp drop from late August to early September. As a result, oil prices crossed $50 per barrel and touched around $52 in September.

Sources: Marathon Petroleum, Phillips 66, Energy Transfer Partners, US Energy Information Administration, Reuters, and Bloomberg.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 0.6% last month due as oil prices rallied over 9%. The index has fallen -6.35% over the last one-year period. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.67%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.45%), Fixed Rate Preferreds (5.29%), Emerging Market Bonds (5.25%), and REITs (3.96%).MLP yield spreads versus 10-year Treasuries currently stand at 5.34%, higher than the long-term average of 3.75%. (Sources: Bloomberg, AltaVista Research, 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 0.41% in September compared to August as oil prices were supportive of higher MLP equity prices. Since September 2016, the EV-to-EBITDA ratio has increased by approximately 15%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count held flat last month at 940 rigs, matching last month’s count. The rig count has more than doubled since its recent low point in May 2016 of 404 rigs. Rig counts may be leveling off as well efficiency has improved and breakeven prices have fallen. US production of crude oil increased marginally to 9.561 mb/d in the last week of September compared to 9.530 mb/d at the end of August. (Source: Baker Hughes & EIA)

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month- and quarter-end, please click here.