SteelPath September MLP update and news

MLP market overview

Midstream MLPs, as measured by the
Alerian MLP Index (AMZ), ended August down 6.7% on a price basis and down 5.5% once
distributions were considered. The AMZ results underperformed the S&P 500
Index’s 1.6% total return loss for the month. The best performing midstream
subsector for August was the Petroleum Pipeline group, while the compression
subsector underperformed, on average.

For the year through August, the AMZ
is up 3.8% on a price basis, resulting in a 10.1% increase in total return.
This trails the S&P 500 Index, which jumped 16.7% and 18.3% in price and
total returns, respectively. The compression group has produced the best
average total return year-to-date, while the gathering and processing subsector
has lagged.

MLP yield spreads*, as measured by the
AMZ yield relative to the 10-Year US Treasury Bond, widened by 110 basis points
(bps**) over the month, exiting the period at 706 bps. This exceeds the
trailing five-year average spread of 529 bps and the average spread since 2000
of approximately 377 bps. The AMZ indicated the distribution yield at month-end
was 8.6%.

Midstream MLPs and affiliates raised no
new marketed equity (common or preferred, excluding at-the-market programs) and
$2.5 billion of marketed debt over the month. MLPs and affiliates announced no
new asset acquisitions in August, though one previously announced consolidation
was completed (MLP acquired by diversified C-Corp sponsor).

Spot West Texas Intermediate (WTI)
crude oil exited the month at $55.10 per barrel, down 5.9% over the period and 21.1%
lower year-over-year. Spot natural gas prices ended August at $2.34 per million
British thermal units (MMbtu***), up 2.6% over the month and 20.9% lower than August
2018. Natural gas liquids (NGL) pricing at Mont Belvieu exited the month at $17.93
per barrel, 2.0% lower than the end of July and 52.9% lower than the year-ago


Major pipelines from Permian to Corpus Christi
begin service.
Crude oil began flowing
on Plains All American Pipeline’s (NYSE: PAA/PAGP) Cactus II Pipeline, with
capacity to deliver up to 670 thousand barrels of crude oil per day (Mbbls/d)
from Wink, Texas to terminals along the Gulf Coast in and around Corpus
Christi, Texas. Additionally, EPIC Midstream (private) began interim crude
service through its Y-Grade pipeline, which will transport up to 440 Mbbls/d
from the Permian Basin to the Corpus Christi area until early 2020 when EPIC’s
590 Mbbls/d Crude Pipeline will be placed into service and the Y-Grade Pipeline
will begin transporting NGLs.1 Finally, Kinder Morgan (NYSE: KMI)
began filling its Gulf Coast Express Pipeline, a pipeline designed to transport
up to two billion cubic feet of natural gas per day from the Permian to a natural
gas hub near Corpus Christi. Full commercial service is slated to begin in

Private equity buying midstream. Late in the month Blackstone Infrastructure
Partners made an offer to take Tallgrass Energy (NYSE: TGE) private at an approximate
35.9% premium over TGE’s closing price on the date of the offer. Blackstone
already holds Class A and B shares of TGE, representing approximately 44% of
the outstanding equity interests that were acquired in March 2019.2

Secord quarter earnings season concludes. Second quarter reporting season was largely
completed by the end of August. Through month-end, 61 midstream entities had
announced distributions for the quarter, including 27 distribution increases, 32
unchanged distributions from the previous quarter, and two dividend suspensions.
Through the end of August, 64 sector participants had reported second quarter
financial results. Operating performance has been, on average, better than expected
with EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization,
coming in 0.3% higher than consensus estimates, 0.3% lower than the preceding
quarter, and 17% higher on a year-over-year basis.3

Chart of the month

SteelPath recently published “Private equity continues to invest in
”, where we discussed the underlying midstream
fundamentals, as well as the continued private equity interest in midstream
assets. Visit the link above or to subscribe to receive our blogs directly.

Figure 1: Private equity has been ramping up investment in midstream at higher valuations than where public MLPs trade

Source: Morgan Stanley and company press releases as of 6/30/19. Past performance is no guarantee of future results
Source: Wells Fargo Research as of 6/30/19. Past performance is no guarantee of future results.


All data is sourced to Bloomberg as of 8/30/2019
unless otherwise indicated

  1. Source: Plains All American Pipeline
  2. Source: Tallgrass Energy
  3. Source: SteelPath and midstream companies, as
    of 8/30/2019


The midstream MLPs are indexed against the Alerian
MLP Index

Private transactions are represented by a pool of
transactions compiled by Wells Fargo Research as of 6/30/2019

* A yield spread is the difference in yield between
debt instruments of varying maturities

** One basis point equals one one-hundredth of 1
percentage point. Changes in interest rates or other financial assets are
measured in basis points.

*** MMbtu represents a standard unit of measure for the price of
natural gas

Blog header image:VisualSpectrum / Stocksy

The mention of specific companies does not
constitute a recommendation by Invesco Distributors, Inc. Certain Invesco funds
may hold the securities of the companies mentioned. A list of the top 10
holdings of each fund can be found by visiting

The Alerian MLP Index is a float-adjusted,
capitalization-weighted index measuring master limited partnerships, whose
constituents represent approximately 85% of total float-adjusted market

The S&P 500 Index is a broad-based measure of
domestic stock market performance. Indices are unmanaged and cannot be
purchased directly by investors. Index performance is shown for illustrative
purposes only and does not predict or depict the performance of any investment.
Past performance does not guarantee future results.

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. Diversification
does not guarantee profit or protect against loss.

The opinions expressed are those of Invesco
SteelPath, are based on current market conditions and are subject to change
without notice. These opinions may differ from those of other Invesco
investment professionals.

Before investing, investors should carefully read
the prospectus and/or summary prospectus and carefully consider the investment
objectives, risks, charges and expenses. For this and more complete information
about the fund(s), investors should ask their advisors for a prospectus/summary
prospectus or visit

Invesco Distributors, Inc.

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