MLP Monthly Report: June 2022

The June 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) OPEC+ plans to raise its production by 648,000 barrels per day in July and August as Russia’s invasion of Ukraine has damaged the global energy markets supply. This will bring forward the end of the organization’s historic output cut implemented during the peak of the pandemic.

2) The European Union (EU) aims to ban 90% of imports of Russian crude oil by the end of 2022, aiming to hamper Russia’s ability to finance the war. The sanctions will affect the EU, where energy prices have skyrocketed and inflation is nearing double digits. To combat rising energy prices, EU leaders are seeking options such as temporary import price caps with international partners.

3) EnLink Midstream, LLC (ENLC) has agreed to acquire North Texas gathering and processing assets from Crestwood Equity Partners LP (CEQP) for $275 million in cash. This deal is expected to be leverage neutral while providing significant synergies, and expand ENLC’s position in the prolific Barnett Shale producing basin.

Sources: Stevens, P., & Tan, W. (2022, June 1). OPEC+ raises output faster than expected as Russia’s war roils global energy markets. Consumer News and Business Channel (CNBC).; Reuters. (2022, May 31).  EU’s phased-in oil embargo allows Russia time to adjust, say analysts, sources.; Abnett, K., Strupczewski, J., & Melander, I. (2022, June 1). EU agrees Russia oil embargo, gives Hungary exemptions; Zelenskiy vows more sanctions. Reuters.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 7.64% last month. The index increased by 25.39% since last May. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 6.93%. MLP yields remained higher than the broad market benchmarks for Emerging Market Bonds (6.32%), Fixed Rate Preferreds (5.83%) and Investment Grade Bonds (4.22%) and lower than the High Yield Bonds (7.17%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 4.18%, lower than the long-term average of 5.73%.² (Sources: Bloomberg; Board of Governors of the Federal Reserve System. (2022, May 31). Preformatted package: Treasury constant maturities [Data set]. Data Download Program.)

Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, increased by 2.25% last month. Since May 2021, the EV-to-EBITDA ratio is up by approximately 3.56%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 727 rigs, increasing by 29 rigs from last month’s count of 698 rigs. US production of crude oil remained same to 11.900 mb/d in the last week of May compared to April levels of 11.900 mb/d. (Sources: Baker Hughes. (2022, June 6). North America rig count.; U.S. Energy Information Administration. (2022, June 3). Petroleum and other liquids.)

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

As of 05/31/2022, EnLink Midstream, LLC (ENLC) was a holding in the Global X MLPA ETF (MLPA) with a 2.15% weighting. Crestwood Midstream Partners, LP (CEQP) was a holding in the Global X MLPA ETF (MLPA) with a 4.56% weighting.

 

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 Fixed Rate Preferred Securities Index: The ICE BofA 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.

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