
Thanks to innovations in production, the U.S. is now the world’s top producer of oil and natural gas. We believe many midstream master limited partnerships (MLPs) are now undervalued and will continue to be strong investment options.
Although low energy prices may slow new drilling, many existing wells can remain profitable. When commodity prices fall, energy companies tend to prioritize production at existing wells that can still compete at low prices. While production from new wells may slow, production from existing wells can remain stable or grow.
The value of some midstream MLPs may exhibit higher correlation to oil prices over the short term but correlations over the long term are low. In midstream subsectors, long-term correlations are particularly low, relative to upstream producers.
We believe there are two reasons why the fundamentals of midstream MLPs remain strong:
- Midstream MLP managers’ revenues function like a toll road, and they collect fees as they move, store or process energy. The volume of traffic, not the price of what’s being transported, determines the amount of toll revenue they generate.
- There is strong demand for more efficient infrastructure with over $95 billion in growth spending announced to date.
Investing for the long term, OFI SteelPath MLP mutual funds are well-positioned to take advantage of current conditions while seeking to limit risk.
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Special Risks: 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. The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in an Oppenheimer SteelPath MLP Fund does not offer the same tax benefits of a direct investment in an MLP. The Funds are organized as Subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential tax benefit of investing in MLPs depends on them being treated as partnerships for federal income tax purposes. If the MLP is deemed to be a corporation, its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution which could result in a reduction of the fund’s value. MLP funds accrue deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund’s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict performance of any investment. These views are subject to change based on subsequent developments.