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MLP Monthly Report: June 2021

Jun 15, 2021

View all Rohan Reddy's ArticlesRohan ReddyRohan Reddy

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) Oasis Petroleum Inc. (OAS) has entered into a series of definitive agreements to sell its complete position in Permian Basin. Oasis Midstream Partners LP (OMP) is seeking to benefit from incremental activity on the Permian asset based on the new operator’s plans, as it has retained its Permian midstream assets in Panther DevCo.

2) Cheniere Energy, Inc. (LNG) and Cheniere Energy Partners, L.P. (CQP) announced that as part of their long-term LNG sale and purchase agreement, they have supplied a carbon-neutral cargo of liquefied natural gas to Shell from Cheniere’s Sabine Pass liquefaction facility.

3) Kinder Morgan, Inc. (KMI) has agreed to acquire Stagecoach Gas Services LLC – a joint venture between Consolidated Edison, Inc. (ED) and Crestwood Equity Partners LP (CEQP) – for $1.225 billion on May 31, 2021. The cash proceeds from the divestment will be split pro-rata between ED and CEQP, with CEQP planning to utilize it to repay outstanding borrowings.

Sources: Oasis Midstream Partners LP, Cheniere Energy Inc, Crestwood Equity Partners LP, Kinder Morgan Inc

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, increased 6.84% last month. The index has increased by 42.76% since last May. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 9.18%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (4.78%), Fixed Rate Preferreds (4.20%), Emerging Market Bonds (3.85%), and Investment Grade Bonds (2.16%).1 MLP yield spreads versus 10-year Treasuries currently stand at 6.25%, higher than the long-term average of 5.73%.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 3.71% last month. Since May 2020, the EV-to-EBITDA ratio is down by approximately 0.31%. (Source: Bloomberg)

Crude Production: The Baker Hughes Rig Count increased to 457 rigs, increasing by 17 rigs from last month’s count of 440 rigs. US production of crude oil decreased to 10.800 mb/d in the last week of May compared to April levels of 10.900 mb/d. (Source: Baker Hughes & EIA)

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

As of 5/31/2021, Oasis Midstream Partners LP (OMP) was a holding in the Global X MLPA ETF (MLPA) with a 4.17% weighting. Cheniere Energy, Inc. (LNG) was a holding in the Global X MLP & Energy Infrastructure ETF (MLPX) with a 6.57% weighting.  Cheniere Energy Partners, L.P. (CQP) was a holding in the MLPA ETF with a 4.71% weighting and MLPX ETF with a 0.64% weighting. Kinder Morgan, Inc. (KMI) was a holding in the MLPX ETF with a 8.98% weighting. Crestwood Equity Partners LP (CEQP) was a holding in the MLPA ETF with a 4.47% weighting.

MLPA ETF and MLPX ETF do not have any holding in Oasis Petroleum Inc. (OAS) and Consolidated Edison, Inc. (ED).

Category: Reports

Topics: Income, MLPs

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Investing involves risk, including possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in securities of MLPs involve risk that differ from investments in common stock including risks related to limited control and limited rights to vote on matters affecting the MLP. MLP common units and other equity securities can be affected by macro economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). The Fund invests in the energy industry, which entails significant risk and volatility. In addition, the Fund is non-diversified which represents a heightened risk to investors. Furthermore, the Fund invests in small and mid-capitalization companies, which pose greater risks than large companies. MLPA has a different and more complex tax structure than traditional ETFs and investors should consider carefully the significant tax implications of an investment in the Fund. The Funds are non-diversified. Current and future holdings are subject to risk.

MLPA is taxed as a regular corporation for federal income tax purposes, which differs from most investment companies. Due to its investment in MLPs, the fund will be obligated to pay applicable federal and state corporate income taxes on its taxable income as opposed to most other investment companies. The fund expects that a portion of the distributions it receives from MLPs may be treated as tax-deferred return of capital. The amount of taxes currently paid by the fund will vary depending on the amount of income and gains derived from MLP interests and such taxes will reduce an investor’s return from an investment in the fund. The fund will accrue deferred income taxes for any future tax liability associated certain MLP interests. Upon the sale of an MLP security, the fund may be liable for previously deferred taxes which may increase expenses and lower the fund’s NAV. The potential tax benefits from investing in MLPs depend on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund’s value. The index however is calculated without any deductions for taxes. As a result, the Fund’s after tax performance could differ significantly from the index even if the pretax performance of the Fund and the performance of the index are closely correlated.

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