Market data:

MLP Update November 2012

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.