The following are some highlights from a conference on MLP I recently attended:
It was highlighted how the yield spread between the Upstream and Midstream sectors is really wide by historical standards; the Upstream averages 10% versus 5.2% in Midstream. The projection was for a shrinking of such spread.
- Staying with the Upstream theme, two deals were noted:
- Breitburn acquired QR Energy in a $3 billion deal
- Linn Energy (a component of most of our MLP portfolios) acquired Devon Energy’s conventional oil and gas assets for $2.3 billion. This deal was deemed to be very positive as Linn continues to change its asset base and improve its wells’ overall decline rate
- Distribution Coverage rate for the industry seems healthy at 1.1 average
- Distribution growth is expected to bet at 5% to 8% for the next 12 months
- On the subject of valuations, a case was made for a transition of the MLP sector from a yield-based model to an equity growth-based metric. Personally, I have some doubts on this idea.
- MLPs as an asset class: the MLP space is now, by market cap, almost as big as the REIT sector and bigger than the traditional Utilities sector.