MLP Monthly Report: September 2017
The September MLP Monthly Report can be found here offering insights on MLP industry news, the asset class’s performance, yields, valuations, and fundamental drivers.
- On August 14, Andeavor Logistics LP (ANDX) and Western Refining Logistics, LP (WNRL) declared an all-equity merger valuing WNRL at an enterprise value of $1.8 billion. In addition, the general partner Andeavor (ANDV) will buy out the Incentive Distribution Rights (IDRs) of ANDX, in exchange for common units of ANDX. These transactions are expected to close by Q4 2017.
- On August 25, Plains All American Pipeline, LP (PAA) and Plains GP Holdings (PAGP) announced a ‘reset’ to their distributions as part of an effort to strengthen their balance sheet by reducing their debt by $1.4 billion. Effective November 2017, the annualized distribution will be cut to $1.20 per unit, representing a 45% distribution cut. In addition, there will be asset sales, a reduction of their Supply & Logistics business, and a preferred stock issuance.
- Hurricane Harvey made landfall along the Gulf coast of Texas and Louisiana, disrupting almost one-quarter of the entire U.S. refining capacity. Gasoline futures subsequently increased by 5% in the one week period between August 25th and September 1st.
Sources: Andeavor, Plains All American, Bloomberg, Reuters
Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, fell -5.45% last month due to weak results from a few MLPs. The index has fallen -4.85% over the last one-year period. (Source: Bloomberg)
Yield: The current yield on MLPs stands at 7.66%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.61%), Preferreds (5.40%), Emerging Market Bonds (5.19%), and REITs (4.00%).1 MLP yield spreads versus 10-year Treasuries currently stand at 5.54%, higher than the long-term average of 3.72%. (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 2.75% in August compared to July in spite of falling MLP units as a massive $1 billion equity offering by top heavy index component, Energy Transfer Partners (ETP), drove this valuation metric up. Since August 2016, the EV-to-EBITDA ratio has increased by approximately 10%. (Source: Bloomberg, MLPData, company financials).
Crude Production: The Baker Hughes Rig Count fell by 18 rigs to 940 compared to last month’s count of 958. 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 rose to 9.530 mb/d in the last week of August from 9.430 mb/d at the end of July. (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