MLP Monthly Report: July 2022

The July 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+ sticks to its planned oil output hike of 648,000 bpd in August and averted discussing its production plans for September even as oil prices soared due to tight global supplies. The alliance is struggling to meet its production target with Nigeria and Angola falling short of its quota, and Russian oil production hindered by sanctions.

2) Williams (WMB) reached a final investment decision on its clean energy project, the Louisiana Energy Gateway (LEG), which will bring 1.8 Bcf/d of natural gas produced in the Haynesville basin for delivery. This deal is expected to further decarbonize the natural gas value chain through investing in carbon capture and storage infrastructure.

3) Targa Resources Corp. (TRGP) and Lucid Energy Group, leading privately held natural gas processors in the Permian Basin, have entered into a definitive agreement to acquire Lucid Energy Delaware for $3.55 billion in cash. The acquisition gives a footing to TRGP in the Delaware Basin in increasing its size and scale.

Sources: Dahan, M. E., Ghaddar, A., & Lawer, A. (2022, June 30). OPEC+ sticks to oil output policy, avoids debate on September plans. Reuters.; The Associated Press. (2022, June 30). OPEC+ nations to boost oil production, but not enough to ease high gas prices. The Oregonian.; Williams Cos Inc. (2022, June 29). Williams reaches final investment decision on Louisiana energy gateway project [Press release].; Targa Resources Corp. (2022, June 16). Targa Resources Corp. to acquire Lucid Energy from Riverstone holdings and Goldman Sachs Asset Management for $3.55bn; provides updated 2022 standalone financial outlook.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, decreased 13.42% last month. The index increased by 3.95% since last June. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 8.10%. MLP yields remained higher than the broad market benchmarks for Emerging Market Bonds (7.18%), Fixed Rate Preferreds (6.47%) and Investment Grade Bonds (4.71%) and lower than the High Yield Bonds (8.91%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 5.11%, lower than the long-term average of 5.72%.² (Sources: Bloomberg; Board of Governors of the Federal Reserve System. (2022, June 30). 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, decreased by 7.21% last month. Since June 2021, the EV-to-EBITDA ratio is down by approximately 5.00%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 753 rigs, increasing by 26 rigs from last month’s count of 727 rigs. US production of crude oil increased to 12.1 mb/d in the last week of June compared to May levels of 11.900 mb/d. (Sources: Baker Hughes. (2022, July 14). North America rig count.; U.S. Energy Information Administration. (2022, July 14). Petroleum and other liquids.)

As of 6/30/2022 Global X MLP ETF (MLPA) does not have a holding in Williams Cos Inc. (WMB), Lucid Energy Group and Targa Resources Corp. (TRGP).

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