MLP Monthly Report: September 2022

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) OPEC+ decided to cut production targets by 100,000 barrels per day starting in October 2022 to bolster prices that have fallen on fears of an economic slowdown. Oil prices have been weighed down by a potential supply increase from Iranian crude returning to the market if Iran is able to revive its nuclear deal. Iran is expected to bring in 1 million bpd to the market, or 1% of global demand.

2) Phillips 66 (PSX) plans to increase its economic interest in DCP Midstream, LP by acquiring all publicly held common units of DCP Midstream for a cash consideration of approximately $400 million while reducing its economic interest in Gray Oak Pipeline, LLC. The transaction enhances the existing NGL platform through value-chain integration and strengthens its competitive position while driving operational and commercial synergies.

3) Enterprise Products Partners L.P. (EPD) announced three projects including the expansion of the company’s natural gas liquid (NGL) pipeline system and the addition of two natural gas processing plants in the Permian Basin to support the Basin’s ongoing production growth. The Permian Basin remains a driving force in the production growth of US crude oil, natural gas, and NGL, meeting increasing domestic and international energy demand.

Sources: Meredith, S. (2022, September 5). Oil producer group OPEC+ surprises energy markets with a small production cut. CNBC.; Lawler, A., Ghaddar, A., & Dahan, M, E. (2022, September 5). OPEC+ agrees small oil production cut. Reuters.; Phillips 66 (PSX). (2022, August 17). Phillips 66 announces offer to acquire outstanding publicly held common units of DCP Midstream, LP.; Phillips 66 (PSX). (2022, August 17). Phillips 66 enhances NGL platform with wellhead to market integration through increased economic interest in DCP Midstream.; Enterprise Products Partners (EPD). (2022, August 3). Enterprise announces three expansions in the permian basin.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased by 4.48% last month. The index increased by 35.08% since last August. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 7.30%. MLP yields remained higher than the broad market benchmarks for Emerging Market Bonds (7.05%), Fixed Rate Preferreds (6.48%) and Investment Grade Bonds (4.83%), and lower than High Yield Bonds (8.45%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 4.26%, lower than the long-term average of 5.70%.² (Sources: Bloomberg; Board of Governors of the Federal Reserve System. (2022, August 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, decreased by 3.07% last month. Since August 2021, the EV-to-EBITDA ratio is up by approximately 0.53%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count decreased to 765 rigs, decreasing by 2 rigs from last month’s count of 767 rigs. US production of crude oil in the last week of August remained unchanged from June levels of 12,100 mb/d. (Sources: Baker Hughes. (2022, September 08). North America rig count.; U.S. Energy Information Administration. (2022, September 08). Petroleum and other liquids.)

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

As of 08/31/2022, Phillips 66 (PSX) was a holding in the Global X MLPA ETF (MLPA) with a 0.06% weighting. Enterprise Products Partners L.P. (EPD) was a holding in Global X MLPA ETF (MLPA) with a 10.88% weighting. DCP Midstream LP was a holding in Global X MLPA ETF (MLPA) with a 5.26% weighting. NGL Energy Partners LP (NGL) was a holding in Global X MLPA ETF (MLPA) with a 0.01% weighting.

MLPA does not have any holding in Gray Oak Pipeline, LLC.

Glossary

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.