AMZ Total Return: 4.8%
Annualized Standard Deviation: 18.9%
Average Yield: 5.6%
Average Spread to Treasuries: 308 basis points
Top AMZ Performer: Phillips 66 Partners (PSXP)
Bottom AMZ Performer: Linn Energy (LINE)
Median AMZ Daily Liquidity: $905 million
It’s been said that the real estate market moves in 7-10 year cycles. Energy cycles, however, have never been as predictable. On June 20th, crude oil prices closed at $107.95/barrel, catching many by surprise and marking the beginning of the current energy downturn. The last major commodity peak was nearly six years prior on July 3, 2008, when WTI closed at $145.31/barrel.
On April 9th, the Wall Street Journal broke the story that the IRS had temporarily suspended the issuance of new private letter rulings (PLRs) on qualifying income for MLPs. The Treasury and the IRS wanted to review whether any changes or clarifications in the standards for the rulings would be necessary.
In June, Seadrill Partners LLC (SDLP) became the first (and only) Services | Upstream MLP to join the Alerian MLP Index (AMZ).
Also in June, the Rockies Express Pipeline, one of the largest natural gas pipelines built in North America, began its first westbound flows of natural gas. When the pipeline was originally completed by Kinder Morgan Energy Partners (former ticker: KMP) in November 2009, natural gas flowed eastward from the Rockies to Ohio. As the Marcellus Shale began to rapidly develop, it became clear that demand for eastbound natural gas flow would no longer be needed. Tallgrass Development, the GP of Tallgrass Energy Partners (TEP), acquired KMP’s 50% stake in the pipeline in 2012 and began the process to reconfigure the pipeline to allow for bi-directional flows on various segments of the pipeline in the Midwest.
Marking the beginning of the reincorporation fear (trend?), the Kinder family merged into Kinder Morgan Inc (KMI) on November 26th. KMP was the second largest constituent in the AMZ at that time. Consequently, the November special rebalancing resulted in the highest quarterly turnover percentage (11.8%) of all time for the index.
With a little help from Kinder (a Pipeline Transportation | Petroleum company) leaving the index, by year end, the weighting of Gathering & Processing (G&P) MLPs in the AMZ totaled 23.2%, the highest allocation to G&Ps of all time. Beyond the AMZ, when looking at the entire universe of energy MLPs, 25 G&P MLPs represented 41.1% of total energy MLP market capitalization, also the highest percentage of G&P MLPs of all time.
2016.05.31 7:20am CST – Edited to clarify which entity acquired a 50% stake in the Rockies Express Pipeline.