MLP Education

Our portfolio management and investment research teams share their insights.

Flash Commentaries

Flash Commentaries address timely issues affecting the MLP space.

 

Date

Commentaries

March 2012

Natural Gas Price Weakness and What It Means for Midstream MLPs


Sean Wells

Natural_Gas_Price_Weakness_and_What_It_Means_for_Midstream_MLPs

As the price of natural gas has fallen below $3.00 per millions of British thermal units (mmbtu as priced at Henry Hub) and made a bid toward the $2.00 level, there has been some concern that the decline could result in collateral damage to midstream Master Limited Partnerships (MLPs). This Flash Commentary is intended to provide investors both with our perspective on the decline in natural gas prices as well as an overview of how midstream assets and services may be impacted by such a decline. As will become evident, we generally believe the sector has only minimal exposure to the price of the commodity and we reiterate our thesis that the owners and operators of true energy infrastructure assets remain largely unaffected by commodity prices.

Analyst Insights

For our Analyst Insight publications, a series of questions are posed to our investment and research teams on a topic that has recently been on investors’ minds. Read or hear our team’s most recent thoughts.

Date

Insights

Speaker

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December 2012

Crude Oil on the Move

Erin Moyer

Crude_Oil_on_the_Move
Over the past couple of years, MLP management teams have been extremely focused on liquids rich shale plays and the growth opportunities surrounding them. In addition, the press has featured many articles covering these shale resources. For the December 2012 installment of our Analyst Insight, Erin Moyer provides an overview of crude oil production in the United States and how it is changing the demand for energy infrastructure.
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February 2012

Weathering the Storm: MLPs Resilience

Sean Wells

Weathering_the_Storm:_MLPs_Resilience
  • Turmoil in Europe along with lowered growth expectations for many developed nations led to elevated uncertainty and, therefore, volatility in markets around the globe and in the US during 2011. As the situation continues to unfold, investors are understandably concerned that their financial assets could be impacted should such volatility reemerge particularly given the financial collapse of 2008-2009 and its impact remains fresh in investor minds.
  • During the 2008 financial crisis, the markets feared that major lending institutions would become insolvent as the value of their mortgage related or linked assets deteriorated. The collapse of the value of these assets forced financial institutions to contract their balance sheets and, of course, a handful of major financial players collapsed under this pressure. The resulting ripple effect across the markets and economy are well known.  Euro zone fears have a similar context.
  • When assessing a company’s ability to “weather a storm” we believe it is most important to review leverage and credit metrics. From that perspective, the sector appears in much better shape today than in the 2008 period. Today, the sector average debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) stands at 3.2x versus the 3.7x associated with the pre-2008 period.
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May 2011

Understanding General Partnerships

Mark Swaringen

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  • General partner Master Limited Partnerships (or GP MLPs) have been in the news of late with two initial public offerings (IPOs) coming on the heels of a number of GP MLP buyouts and there is often some confusion about investing in this small and less understood subsector.
  • An MLP’s equity ownership is generally divided between limited partners (LP) and a general partner (GP). The limited partner interests are represented by the limited partner units that are publicly traded. Traditionally, the general partner interest was retained by the MLP’s sponsor, usually an integrated energy firm, who would run and manage the business of the MLP.
  • The GP sponsor will typically receive a payment referred to as incentive distribution rights (IDRs). Conceptually, the purpose of the IDR mechanism is to incentivize the sponsor to grow the MLP’s assets and the distributions to its limited partners. At IPO, the GP sponsor typically only receives 2% of the cash distributions paid by the MLP, a share equal to its nominal ownership interest, but, through the IDRs, as the distribution rate is increased the GP can receive an increasing share of cash flows distributed by the MLP.
  • Because of the design of IDRs, investing in GP MLPs can present both a great deal of risk as well as reward. GP MLPs may offer higher growth profiles but come with much higher risk and we find that value proposition less unique.
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April 2010

The Outlook for Natural Gas

Gabriel Hammond

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In early 2010, natural gas prices retreated again after a brief winter rally and few investors were bullish on natural pricing in the short-term. However, the resource’s abundance, clean burning nature, and low price had many investors bullish on the trajectory of natural gas volume demand over the long-term and they were curious how this dynamic might affect the need for natural gas infrastructure. For the April 2010 Analyst Perspective, Portfolio Manager Gabriel Hammond addresses questions on the outlook for natural gas infrastructure.
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March 2010

Interest Rates and MLPs

Stuart Cartner

Interest_Rates_and_MLPs
In March 2010, the 10-year Treasury rate had spent the better part of the past two years below 4.0% and the Fed Funds rate had been at a historic 0.25% low for a year in an attempt to stimulate the economy. However, over the past months, the economy appeared to have been doing better and investors were curious about what impact higher interest rates might have on the master limited partnership (MLP) space. For the March 2010 Analyst Perspective, Portfolio Manager Stuart Cartner addresses questions on interest rates and the MLP space.
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February 2010

Are Distributions Safe

Brian Watson

Are_Distributions_Safe
In January 2010, two master limited partnerships (MLPs), both involved in shipping, cut their distributions. Many investors were surprised by the cuts since the economy appeared to have been rebounding and they had been asking about the safety of distributions. For the February 2010 installment of the Analyst Insight, Director of MLP Research and Portfolio Manager, Brian Watson addresses questions on MLP distribution safety.
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January 2010

Natural Gas and MLPs

Brian Watson

Natural_Gas_and_MLPs
In December 2009, natural gas prices had rallied sharply after spending most of the year falling. Given all of this volatility many investors were curious about what impact natural gas prices would have on Master Limited Partnerships (MLPs). For the January 2010 installment of the Analyst Perspective, Director of MLP Research and Portfolio Manager, Brian Watson addresses questions on natural gas prices and how natural gas fundamentals relate to the MLP space.

*The Alerian MLP Index is a composite of the 50 most prominent energy Master Limited Partnerships that provides investors with an unbiased, comprehensive benchmark for this emerging asset class. The index, which is calculated using a float-adjusted, capitalization-weighted methodology, is disseminated real-time on a price-return basis (NYSE: AMZ). It is not possible to invest directly in an index. Performance information provided for the Alerian MLP Index and the Alerian Infrastructure Index is not indicative of the performance of the Oppenheimer SteelPath Funds. Performance data is calculated from the date of inception, 3/31/2010 for Oppenheimer SteelPath MLP Alpha Fund, Oppenheimer SteelPath MLP Income Fund and Oppenheimer SteelPath MLP Select 40 Fund. Performance data is calculated from the date of inception, 12/30/2011 for Oppenheimer SteelPath MLP Alpha Plus Fund and Oppenheimer SteelPath MLP Infrastructure Debt Fund.

**Yield information discussed above is historical and relates to MLPs generally. Such yield information does not represent the performance of Oppenheimer SteelPath MLP Funds. Past performance does not guarantee future results.

Investing in MLPs involves additional risks compared to the risks of common stock, including risks related to cash flow, dilution, and voting rights.   Energy infrastructure companies are subject to risks such as fluctuations in commodity prices, reduced volumes of natural gas or energy commodities, environmental hazards, changes in macroeconomic conditions, regulations or extreme weather.

MLPs may trade less frequently which may result in erratic price movement.  MLPs are highly regulated and may be adversely affected by changes in the regulatory environment including the risk that an MLP could lose its tax status as a partnership.