MLP Monthly Report: September 2018

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.

Summary

News:

1) Apache Corporation (APA) and Kayne Anderson Acquisition Corp (KAAC) announced an agreement to create a midstream C-Corp publicly traded offering for APA’s midstream assets valued at $3.5 billion. The entity will be named Altus Midstream Company and will trade on NASDAQ. APA will own a 71% stake.

2) Diamondback Energy (FANG), will be taking their midstream entity, Rattler Midstream Partners (Rattler) public. The entity will be taxed as a C-Corp, but will be structured as a partnership. Rattler, with assets in the Permian Basin, is looking to raise $100 million. Unlike traditional midstream structured partnerships, Rattler will be taxed as a C-Corp and have no Incentive Distribution Rights (IDRs)

3) In November, the state of Colorado will vote on an oil and gas initiative (Initiative 97) that seeks to increase the distance between new oil and gas development and populated areas from 500 feet to 2500 feet. The measure could limit drilling in the state, potentially impacting MLPs and midstream companies with assets in Colorado.

Sources: Apache Corp, Reuters, The Oil and Gas Year, U.S. Securities and Exchange Commission, Nasdaq, Lexology and The Denver Post.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, rose by 2.1% as oil prices continued rising. The index is up 1.8% since last August. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.75%. MLP yields remained higher than the broad market benchmarks for Emerging Market Bonds (6.69%), High Yield Bonds (6.27%), Fixed Rate Preferreds (5.55%), and Investment Grade Bonds (4.10%).1 MLP yield spreads versus 10-year Treasuries currently stand at 4.69%, higher than the long-term average of 4.36%.2 (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, rose 1.70% last month. Since August 2017, the EV-to-EBITDA ratio has risen by approximately 2.07%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count held flat last month at 1048 rigs. The rig count has more than doubled since its recent low point in May 2016 of 404 rigs. US production of crude oil rose to 11.000 mb/d in the last week of August compared to 10.900 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

MLPA ETF and MLPX ETF do not have any holding in Apache Corporation (APA), Kayne Anderson Acquisition Corp (KAAC), Diamondback Energy (FANG), and Rattler Midstream Partners (Rattler).