For the year through April, the AMZ is up 12.1% on a price basis, resulting in a 15.2% total return. This compares to the S&P 500 Index’s 17.5% and 18.2% price and total returns, respectively. The Propane group has produced the best average total return year-to-date, while the Natural Gas Pipeline subsector has lagged.
MLP yield spreads, as measured by the AMZ yield relative to the 10-Year U.S. Treasury Bond, widened by one basis point (bps) over the month, exiting the period at 564 bps. This compares to the trailing five-year average spread of 508 bps and the average spread since 2000 of approximately 373 bps. The AMZ indicated distribution yield at month-end was 8.1%.
Midstream MLPs and affiliates raised $0.9 billion on new marketed equity (common or preferred, excluding at-the-market programs) and $2.1 billion of marketed debt during the month. MLPs and affiliates announced $0.7 billion of asset acquisitions over the month.
Spot West Texas Intermediate (WTI) crude oil exited the month at $63.91 per barrel, up 6.3% over the period and 6.8% lower year-over-year. Spot natural gas prices ended March at $2.59 per million British thermal units (MMbtu), down 5.1% over the month and 5.8% lower than April 2018. Natural gas liquids (NGL) pricing at Mont Belvieu exited the month at $24.95 per barrel, 2.6% higher than the end of March and 25.3% lower than the year-ago period.
First-Quarter Earnings Season Kicks Off. First-quarter reporting season began in April. Through month-end, 54 midstream entities had announced distributions for the quarter, including 25 distribution increases, three reductions, and 26 distributions that were unchanged from the previous quarter. Through the end of April, 12 sector participants had reported fourth-quarter financial results. Operating performance has been, on average, in-line with expectations with EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, coming in 0.2% lower than consensus estimates and 3.4% greater than the preceding quarter.
Private Equity Continues to Demonstrate Midstream Interest. Global Infrastructure Partners (GIP) acquired Oryx Midstream, a private Delaware Basin-focused oil gathering and transmission company, from a consortium of private equity firms and two publicly traded oil and gas producers for $3.6 billion. GIP already holds meaningful midstream interests, including stakes in EnLink Midstream (NYSE: ENLC), Hess Midstream (NYSE: HESM) and its sponsor vehicles, Hess Infrastructure Partners, Medallion Gathering and Processing (Private), and Freeport LNG (Private).
PBFX Completes Drop-Down Acquisition and Equity Funding Transaction. PBF Logistics (NYSE: PBFX) announced a drop-down transaction with its sponsor, PBF Energy (NYSE: PBF), in which PBFX will acquire the remaining 50% interest in the Torrance Valley Pipeline for $200 million. To fund the transaction, PBFX completed a privately marketed equity offering of $135 million, the largest common equity transaction in the midstream space since February 2018.
The views presented herein represent the opinions of OFI Global Asset Management (“OFI Global”) and are not intended as recommendations, as investment advice or to predict or depict the performance of any investment. These views are based on the information available as of the date noted and are subject to change at any time based on subsequent developments.
The Alerian MLP Index is a float-adjusted, capitalization-weighted index measuring master limited partnerships, whose constituents represent approximately 85% of total float-adjusted market capitalization. The S&P 500 Index is a broad-based measure of domestic stock market performance. The Dow Jones Equity All REIT Index is designed to measure all publicly traded real estate investment trusts in the Dow Jones U.S. stock universe classified as equity REITs according to the S&P Dow Jones Indices REIT Industry Classification Hierarchy. The Dow Jones Utility Average, also known as the Dow Jones Utilities Index, aims to represent the stock performance of 15 large, well-known U.S. companies within the utilities industry. Indices are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.
Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. Additionally, investing in MLPs involves material income tax risks and certain other risks. Actual results, performance or events may be affected by, without limitation (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) changes in laws and regulations, and (5) changes in the policies of governments and/or regulatory authorities. Investing in MLPs may generate unrelated business taxable income (UBTI) for tax-exempt investors both during the holding period and at time of sale. Diversification does not guarantee profit or protect against loss.