Midstream Energy Monthly Report | June

Midstream Energy ETF: Key Takeaways

At the end of May, the underlying index for the Alerian Midstream Energy Dividend UCITS ETF (MMLP), AEDW, was yielding 6.21%. AEDW was trading at 10.52x 2023 EBITDA estimates per Bloomberg – a discount to the historical (ten-year) average EV/EBITDA multiple for midstream of ~12x. [1]

Earnings season for midstream companies wrapped up in early May, closing a strong reporting period characterized by numerous EBITDA beats, steady or upward guidance revisions, and increased return of capital in the form of dividend hikes and/or buybacks.[2] Solid 1Q22 earnings results and continued commodity price strength contributed to another month of outperformance for energy equities, including AEDW.

On a net total-return basis, AEDW gained 6.44% in May, eclipsing the S&P 500’s total return of 0.18%. AEDW trailed the Stoxx Europe 600 Oil and Gas Index (SXEP), which rose 9.51% on a net total-return basis in May.[3] WTI oil prices extended their gains in May, ending the month with a 9.53% gain as prices settled at $115 per barrel. Natural gas prices at Henry Hub rose to multi-year highs and recorded a 12.43% gain for the month amid resilient liquefied natural gas (LNG) demand and tighter inventories. Energy equities, including midstream, have strongly outperformed thus far in 2022. Year to date, AEDW has delivered a net-total return of 25.96% while the S&P 500 has fallen -12.76% on a total-return basis.

Pipeline projects to address the growing need for additional natural gas takeaway from the Permian have been a focus for midstream companies, including projects to help meet the growing demand for LNG exports.

• Kinder Morgan (KMI) is soliciting shipper interest for a 0.65 Bcf/d expansion of the Permian Highway Pipeline and a 0.57 Bcf/d expansion of its Gulf Coast Express Pipeline. [4]

• Enbridge (ENB CN) is advancing a series of projects to supply 1.5 Bcf/d to Venture Global’s Plaquemines LNG facility on the Gulf Coast. [5]

• MPLX (MPLX) confirmed the expansion of the Whistler Pipeline by 0.5 billion cubic feet per day (Bcf/d) to 2.5 Bcf/d with completion expected in September 2023.[6] Additionally, MPLX and its partners EnLink Midstream (ENLC), WhiteWater (not in the portfolio), and Devon Energy Corp (not in the portfolio) announced they would proceed with the construction of the Matterhorn Express pipeline, which will transport up to 2.5 Bcf/d of natural gas from the Permian and is expected to be in service in 3Q24. [7]

Please note that all performance figures are showing net data. Past performance is not a guarantee of future performance.

Macro Outlook

The macro backdrop remains constructive for energy equites as they continue to benefit from higher commodity prices and continued inflationary pressures.[8] Midstream companies are generating significant free cash flow and returning excess cash flow to investors through both dividend increases and buybacks. As of mid-May, 73.1% of the AEDW Index by weighting had a buyback program in place.[9] In addition to returning more cash to shareholders, midstream companies are also leveraging strong free cash flow generation to selectively pursue growth opportunities with attractive returns, particularly around natural gas, LNG, and natural gas liquids. Roughly 67% of AEDW by weighting is primarily focused on activities related to natural gas - gathering & processing, natural gas pipeline transportation, and liquefaction.[10] Energy infrastructure continues to offer attractive income while benefiting from both macro and company-level tailwinds.

MMLP Performance Table (As of 31.05.22)

Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Please note that all performance figures are showing net data.

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