MLP Monthly Report: September 2021

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.

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

Summary

News:

1) Enbridge, Inc. (ENB) has entered into an agreement to acquire logistics company Moda Midstream Operating LLC for $3.0 billion in cash from EnCap Flatrock Midstream. The deal is expected to enhance ENB’s U.S. Gulf Coast export strategy and bolster the connectivity to low-cost and long-lived reserves in the Permian and Eagle Ford basins.

2) OPEC+ plans to ramp up its production by 400,000 barrels per day (bpd) to the market in October, sticking to its existing policy of a gradual output increase for a second month in a row. The organization also revised its 2022 growth forecast to 4.2 million bpd, up from the previous projection of 3.28 million bpd, likely building a case for higher throughput in the future.

3) BP Pipelines (North America) Inc. (BP), through its wholly-owned subsidiary BP Midstream Partners Holdings LLC, has offered to acquire all of BP Midstream Partners (BPMP)’s outstanding common units held by the public in exchange for newly-issued American depositary receipts of BP PLC at a value of $13.01 per BPMP common unit.

Sources: Enbridge, Inc., Reuters, BP Midstream Partners, L.P.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, decreased 3.42% last month. The index has increased by 51.91% since last August. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 8.42%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.61%), Fixed Rate Preferreds (4.07%), Emerging Market Bonds (3.86%), and Investment Grade Bonds (2.04%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 6.70%, higher than the long-term average of 5.74%.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, decreased by 2.38% last month. Since August 2020, the EV-to-EBITDA ratio is down by approximately 0.36%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 508 rigs, increasing by 20 rigs from last month’s count of 488 rigs. US production of crude oil increased to 11.500 mb/d in the last week of August compared to July levels of 11.200 mb/d. (Source: Baker Hughes & EIA)

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

As of 8/31/2021, Enbridge, Inc. (ENB) was a holding in the Global X MLP & Energy Infrastructure ETF (MLPX) with a 9.10 % weighting. BP Midstream Partners, L.P. (BPMP) was a holding in the Global X MLPA ETF (MLPA) with a 4.80% weighting.

MLPA ETF and MLPX ETF do not have any holding in BP PLC. (BP), Moda Midstream, LLC (Moda) and EnCap Flatrock Midstream (EFM).

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: September 2021

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