MLPs, as measured by the Alerian MLP Index (AMZ), ended March up 3.4% on a price basis and once distributions are considered. The AMZ results outperformed the S&P 500 Index’s 1.9% total return for the month. The best performing MLP subsector for March was the Natural Gas Pipeline group, while the Compression subsector underperformed, on average.

For the year through March, the AMZ is up 14.5% on a price basis, resulting in a 16.8% total return. This compares to the S&P 500 Index’s 13.1% and 13.6% price and total returns, respectively. The Propane group has produced the best average total return year-to-date, while the Marine 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 562 bps. This compares to the trailing five-year average spread of 504 bps and the average spread since 2000 of approximately 372 bps. The AMZ indicated distribution yield at month-end was 8.0%.

Midstream MLPs and affiliates raised $1.4 billion on new marketed equity (common or preferred, excluding at-the-market programs) and $3.9 billion of marketed debt during the month. MLPs and affiliates announced $1.2 billion of asset acquisitions over the month.

Spot West Texas Intermediate (WTI) crude oil exited the month at $60.14 per barrel, up 5.1% over the period and 7.4% lower year-over-year. Spot natural gas prices ended March at $2.73 per million British thermal units (MMbtu), down 8.1% over the month and 2.8% lower than March 2018. Natural gas liquids (NGL) pricing at Mont Belvieu exited the month at $24.31 per barrel, 8.6% lower than the end of February and 17.9% lower than the year-ago period.

News

Private Equity Buys into Appalachian Midstream. Williams (NYSE: WMB) and Canada Pension Plan Investment Board (CPPIB) announced plans to form a $3.8 billion joint venture that will own 100% of both WMB’s Ohio Valley Midstream system (OVM) and its Utica East Ohio Midstream System (UEO). CPPIB will invest approximately $1.34 billion for a 35% ownership stake in the joint venture. Williams will retain 65% ownership and will operate the combined business. Concurrent with signing the agreement with CPPIB to purchase a 35% interest in the joint venture, WMB purchased the remaining 38% stake in UEO from Momentum Midstream and will take over operatorship. UEO is involved primarily in the processing and fractionation of natural gas and natural gas liquids in the Utica Shale play in eastern Ohio.

Private Equity Also Increases Bet on Water Handling. TPG Capital announced an agreement to acquire a majority stake in Goodnight Midstream from Tailwater Capital and private investors for approximately $930 million. Goodnight Midstream is a provider of oilfield water management infrastructure. Through an extensive network of more than 420 miles of dedicated produced water gathering and transportation pipelines, and more than 50 saltwater disposal wells, Goodnight Midstream gathers, transports, and disposes more than 350,000 barrels of produced water per day.

IDRs Eliminations and Corporate Consolidations Continue. Antero Midstream (NYSE: AM) completed its simplification and conversion to corporation status during the period. Additionally, private equity firm Arclight Capital Partners announced the acquisition of American Midstream Partners (NYSE: AMID).

Chart of the Month

As pipelines carrying natural gas away from the Permian basin have filled, and as isolated maintenance and force majeure events have further curtailed capacity, natural gas priced at the Waha natural gas hub in west Texas have gone negative, with producers effectively paying to get rid of their natural gas volumes in order to maintain production of the more valuable crude oil production stream. Additional natural gas takeaway capacity is expected later in 2019 and in 2020, but additional capacity is likely necessary. Industry has announced multiple potential projects, but no project has formally reached final investment decision to move forward. Wide price differentials may help facilitate the process of securing commitments from producer shippers.

Source: EIA Drilling Productivity Report (March 18, 2019), Bloomberg, and OFI SteelPath