Yesterday I participated in a conference call on Master Limited Partnerships and the following are the key points to highlight:
- The US energy renaissance is in full swing and the US Energy Information Administration (EIA) has projected domestic crude oil production to grow form the present 6000 barrels/day to over 9000 in 2020. Natural gas production is also projected to grow form the present 65 billion cubic feet to over 75 bcf per day by 2020.
- Such an increase in production is already putting stress in our pipeline takeaway capacity and storage system. ICF International has forecasted the following requirements for crude oil and nat gas infrastructures:
|
Oil and NGL Pipeline Infrastructure |
2010-2020 |
2010-2035 |
Average Annual |
|
Miles of Transmission Mainline (1000s) |
23.6 |
31.8 |
1.3 |
|
Cost of Transmission Mainline (Billions $) |
$36.9 |
$60.4 |
$2.4 |
- Comparative Yield Levels:
|
MLPs |
10 year |
Utilities |
REITs |
BBB Bonds |
|
6.2% |
1.8% |
4.0% |
3.5% |
3.3% |
|
|
Spread above 400 bps indicate a strong probability of positive performance in the next 12 months |
Spread over REITs is close to 1 standard deviation from average |
Spread over BBB is above 1 standard deviation from average |
|
- Distributable CashFlow Valuation; FactSet Research System reports MLPs trading at a multiple of DCF of 10.18 above the historical average of 9 but still within 1 standard deviation and below previous peaks values of between 11 and 14.