News:

1) Energy Transfer LP (ET) has announced that it will acquire SemGroup (SEMG) for $5 billion, funding the acquisition using 40% cash and 60% ET stock. The purchase price represented a 65% premium over the closing price of SEMG shares as of Sept 13. With this acquisition, ET could improve its capability to export to the Gulf Coast. The deal is expected to be closed in late 2019 or early 2020.

2) Crude prices have corrected back to the levels where they were before the drone attacks in Saudi Arabia, although around 5% of global oil supply was impacted by the incident. The major reason for this correction is oversupply from the US. Aramco will also be restoring its full capacity earlier than expected. Subdued demand for oil, mostly due to lowering optimism regarding the progress in US-China trade talks and the global economic slowdown, is also adding to these factors, suppressing oil prices.

3) Hess Midstream Partners LP (HESM) plans to convert its organizational structure from that of a Master Limited Partnership (MLP) to that of an Umbrella Partnership or an “Up-C” structure, eliminating the incentive distribution rights (IDRs) payments to the sponsor. An Up-C structure is a multi-share class ownership structure with certain tax benefits. HESM will name the new entity Hess Midstream LP.

Sources: Business Wire, Business Journal, Oilprice.com, CNBC, MarketWatch, Hess Midstream Partners L.P.

Performance: Midstream MLPs, as measured by the Solactive MLP Infrastructure Index, went up by 1.44% last month. The index is down by -7.02% since last September. (Source: Bloomberg)

Yield: The current yield on MLPs stands at 8.34%. MLP yields remained higher than the broad market benchmarks for High Yield Bonds (5.65%), Emerging Market Bonds (5.19%), Fixed Rate Preferreds (5.15%), and Investment Grade Bonds (3.10%).1 MLP yield spreads versus 10-year Treasuries currently stand at 6.51%, higher than the long-term average of 4.54%.2

Valuations: The Enterprise Value to EBITDA ratio (EV-to-EBITDA), which seeks to provide more color on the valuations of MLPs, increased by 0.3% last month. Since September 2018, the EV-to-EBITDA ratio has fallen by approximately -24%. (Source: Bloomberg).

Crude Production: The Baker Hughes Rig Count fell last month to 860 rigs, falling by 44 rigs from last month’s count of 904 rigs. The rig count has more than doubled since its recent low point in May 2016 of 404 rigs. US production of crude oil stayed flat at 12.400 mb/d in the last week of September compared to August. (Source: Baker Hughes & EIA)

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. For performance data current to the most recent month- and quarter-end, please click here

As of 09/30/2019, Energy Transfer LP (ET) was a holding in the Global X MLP ETF (MLPA), with an 8.59% weighting and the Global X MLP and Energy Infrastructure ETF (MLPX), with a 4.17% weighting.

MLPX ETF and MLPA ETF do not have any holding in SemGroup (SEMG) and Hess Midstream Partners LP (HESM).

Footnotes

1. Asset class representations are as follows, MLPs, Solactive MLP Infrastructure Index; High Yield Bonds, Bloomberg Barclays US Corporate High Yield Index; Preferreds, ICE BofA Merrill Lynch Fixed Rate Preferred Securities Index; Emerging Market Bonds, J.P. Morgan EMBI Global Core Index; Investment Grade Bonds, iBoxx USD Liquid Investment Grade Index;

2. MLPs are represented by the S&P MLP Index.

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.

The 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 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.

J.P. Morgan EMBI Global Core Index: J.P. Morgan EMBI Global Core Index is a broad, diverse U.S. dollar-denominated emerging markets debt benchmark that tracks the total return of actively traded external debt instruments in emerging market countries.

iBoxx USD Liquid Investment Grade Index: The iBoxx USD Liquid Investment Grade index measures the performance of 600 highly liquid investment grade corporate bonds.

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.