Investing

SteelPath January MLP update and news

The master
limited partnership (MLP) sector saw a series of acquisitions take place in
December, from Blackstone reaching an agreement with Tallgrass Energy to Energy
Transfer closing on the SemGroup acquisition. The events marked a strong month
for midstream equities which outperformed the broader market in December.

MLP market
overview

Midstream MLPs, as measured by the Alerian MLP Index (AMZ),
ended December up 8.5% on a price basis and total return basis. The AMZ’s
results outperformed the S&P 500 Index’s 3.0% total return for the month.
The best performing midstream subsector for December was the Gathering and
Processing group, while the Propane subsector underperformed, on average.

For the year, the AMZ was down 2.0% on a price basis,
resulting in a 6.3% total return gain once distributions are considered. This
compares to the S&P 500 Index’s 28.9% and 31.5% price and total returns,
respectively. The Compression group produced the best average total return for
2019, while the Gathering and Processing subsector was the weakest.

MLP yield spreads, as measured by the AMZ yield relative to
the 10-Year U.S. Treasury Bond, narrowed by 101 basis points (bps) over the
month, exiting the period at 726 basis points (bps). This compares to the
trailing five-year average spread of 556 bps and the average spread since 2000
of approximately 383 bps. The AMZ indicated distribution yield at month-end was
9.2%.

Midstream MLPs and affiliates raised no new marketed equity
(common or preferred, excluding at-the-market programs) and $500 million of
marketed debt during the month. MLPs and affiliates announced no asset
acquisitions over the month.

Spot West Texas Intermediate (WTI) crude oil exited the month
at $61.06 per barrel, up 10.7% over the period and 34.5% higher year-over-year.
Spot natural gas prices ended December at $2.09 per million British thermal
units (MMbtu), down 15.0% over the month and 34.4% lower than December 2018.
Natural gas liquids (NGL) pricing at Mont Belvieu exited the month at $20.76
per barrel, 13.0% lower than the end of November and 13.8% lower than the
year-ago period.

News

Private
equity keeps buying midstream.
Blackstone (NYSE: BX) reached
a formal agreement with Tallgrass Energy (NYSE: TGE) to acquire the remaining shares
of TGE that it did not already own, which takes the company private at $22.45/unit
or a 15% premium to the initial offer and a 22.75% premium to the closing price
the day before the announcement. Additionally, private equity firms KKR and
AIMCo acquired 65% of the Coastal GasLink Pipeline Project from TC Energy (NYSE:
TRP) in exchange for reimbursement of a portion of project costs already
incurred plus additional payments through the remainder of the project’s
construction and operation.

Antero
buys shares from Antero.
Antero Midstream (NYSE: AM) announced an
arrangement with its producer affiliate, Antero Resources (NYSE: AR), in which
AM will repurchase and retire$100 million worth of AM shares held by AR. The
arrangement is expected to reduce AM’s dividend burden in 2020 by close to $25
million. Additionally, AM and AR agreed on an incentive program whereby AM will
provide AR rebates of certain midstream fees provided specified volume growth
targets are achieved through 2023. And finally, AM announced a reduced 2020
capital expenditure budget of $300 million from $325 million thanks to a more
efficient drilling plan at AR.

Energy
Transfer closes SemGroup acquisition.
Energy Transfer (NYSE: ET)
closed the previously announced acquisition of SemGroup (NYSE: SEMG) for total
consideration, including the assumption of approximately $5 billion of debt.
The acquisition is expected to significantly strengthen ET’s crude oil transportation,
terminalling, and export capabilities with the addition of SemGroup owned
Houston Fuel Oil Terminal (HFOTCO), a crude oil terminal on the Houston Ship
Channel with 18.2 million barrels of crude oil storage capacity, five
deep-water ship docks, and seven barge docks. HFOTCO is supported by stable
take-or-pay cash flows from diverse, primarily investment grade customers. To
enhance this optionality, ET also announced plans to construct a new crude oil
pipeline, the Ted Collins Pipeline, that will connect the HFOTCO to Energy
Transfer’s Nederland Terminal. This acquisition also expands ET’s crude oil and
NGL infrastructure by adding crude oil gathering assets in the DJ Basin in
Colorado and the Anadarko Basin in Oklahoma and Kansas, as well as crude oil
and natural gas liquids pipelines connecting the DJ Basin and Anadarko Basin
with crude oil terminals in Cushing, Oklahoma.

Chart
of the month

Over the last year, midstream management insiders invested
approximately $283 million to acquire additional equity stakes in their
companies. As midstream public market prices continued to decline during the
fourth quarter of 2019, insiders purchased approximately $133 million of
company stock, or 47% of the total monies invested over the year. Insider
buying is often seen as a positive sign of a company’s business and financial
prospects because management insiders hold the most intimate knowledge of the
day-to-day operations.

Figure 1: Midstream insider buying (in $millions)

Name Ticker 1 year 3 month
Kinder Morgan KMI 157.9 29.2
Enterprise Products
Partners
EPD 52.3 51.9
Energy Transfer LP ET 46.7 46.6
Equitrans Midstream
Corp.
ETRN 9.2 0.1
Western Midstream
Partners LP
WES 3.5 1.5
MPLX LP MPLX 3.2 0.0
Plains GP Holdings LP PAGP 2.4 2.4
Targa Resources Corp. TRGP 2.0 0.0
Williams Companies
Inc.
WMB 1.5 0.0
EnLink Midstream LLC ENLC 1.5 0.0
Phillips 66 Partners
LP
PSXP 0.6 0.0
Altus Midstream
Company
ALTM 0.6 0.1
Cheniere Energy Inc. LNG 0.5 0.5
ONEOK Inc. OKE 0.5 0.5
Magellan Midstream
Partners LP
MMP 0.3 0.0
DCP Midstream LP DCP 0.1 0.0
Blueknight Energy
Partners LP
BKEP 0.1 0.1
Shell Midstream
Partners LP
SHLX 0.1 0.0
Total 282.9 132.8

Source: Bloomberg, company filings.

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Footnotes

All data sourced from Bloomberg L.P. as of 12/31/2019 unless
otherwise indicated

Important
Information

Blog
Header Image: Suriyapong
Thongsawang
/ Getty

A yield spread is the difference in yields between
debt instruments of varying maturities, credit ratings, and risk, calculated by
deducting the yield of one instrument from another

The mention of specific companies, industries,
sectors, or issuers does not constitute a recommendation by Invesco
Distributors, Inc.

Certain Invesco funds may hold the securities of the
companies mentioned. A list of the top 10 holdings of each fund can be found by
visiting invesco.com.

The S&P 500 Index is a stock market index that
measures the stock performance of 500 large companies listed on stock exchanges
in the United States.

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. 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. Diversification
does not guarantee profit or protect against loss.

The opinions expressed are those of Invesco
SteelPath, are based on current market conditions and are subject to change
without notice. These opinions may differ from those of other Invesco
investment professionals.

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investors should carefully read the prospectus/summary prospectus and carefully
consider the investment objectives, risks, charges and expenses. For this and
more complete information about the funds call 800 983 0903 or visit invesco.com
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