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MLP Monthly Report: December 2020

Dec 16, 2020

The December 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) Organization of the Petroleum Exporting Countries and Russia (OPEC+) has planned to extend its production cut program, withholding 7.2 million barrels per day (bpd) or 7% of the global demand until March 2021. OPEC+ has agreed to meet every month beyond January 2021 to decide on production output, with monthly increases not exceeding 500,000 bpd.
2) Williams Companies Inc. (WMB) and Chesapeake reached an agreement in which the former will reduce the fees it charges on some lines. As per the agreement, Chesapeake will pay all pre-petition and past dues related to midstream expenses as per the existing contracts. Chesapeake also agreed not to reject William’s gathering agreements in Eagle, Ford, Marcellus, or Mid-Con.
3) The sentiment for oil markets gained momentum in November as markets expected positive news on the Covid-19 vaccine to fuel increased demand, further helped by the weakening US dollar. In addition, small cap value stocks delivered outperformance versus large cap growth stocks and the markets underwent a cyclical rotation. This bolstered MLPs to increase 22% over the period, as measured by the Solactive MLP Infrastructure Index.
Sources: Reuters, Business Insider, Solactive MLP Infrastructure Index

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 22.36% last month. The index is down by 32.34% since last November. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 12.81%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.34%), Fixed Rate Preferreds (4.30%), Emerging Market Bonds (3.74%), and Investment Grade Bonds (1.85%).¹ MLP yield spreads versus 10-year Treasuries currently stand at 11.21%, higher than the long-term average of 5.59%.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, increased by 4.81% last month. Since November 2019, the EV-to-EBITDA ratio is down by approximately 10.14%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 320 rigs, increasing by 24 rigs from last month’s count of 296 rigs. US production of crude oil increased to 11.100 mb/d in the last week of November compared to October levels of 10.500 mb/d. (Source: Baker Hughes & EIA)

For performance data current to the most recent month- and quarter-end, please click here.
As of 11/30/2020, Williams Companies Inc. (WMB) was a holding in the Global X MLP and Energy Infrastructure ETF (MLPX), with a 7.52% 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.

Solactive MLP & Energy Infrastructure Index: The Solactive MLP & Energy Infrastructure Index is intended to give investors a means of tracking the performance of MLPs and energy infrastructure corporations. Midstream energy infrastructure MLPs and corporations principally own and operate assets used in energy logistics, including, but not limited to, pipelines, storage facilities and other assets used in transporting, storing, gathering, and processing natural gas, natural gas liquids, crude oil or refined products. The index limits its exposure to partnerships in order to comply with applicable tax diversification rules. Securities must be publicly traded in the United States. The index is maintained by Solactive AG.

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 Barclays US Corporate High Yield Total Return Index: The Bloomberg Barclays 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 Barclays 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 Barclays EM USD Aggregate Total Return Index: The Bloomberg Barclays 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 Barclays US Corporate Total Return Index: The Bloomberg Barclays 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 Barclays US Corporate High Yield Total Return Index; Preferreds, ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, Bloomberg Barclays EM USD Aggregate Total Return Index; REITs, FTSE NAREIT All Equity REITS Index; Investment Grade Bonds, Bloomberg Barclays 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.

Category: Reports

Topics: Income, MLPs

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MLP Monthly Report: December 2020

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