Rising U.S. oil output coupled with deleveraging and improving balance sheets among many MLPs could prompt management teams to renew their focus on shareholder rewards after several years of diverting cash toward new investments.
“While this alienated long-standing investors who liked stable distributions, and caused substantial underperformance versus the S&P500, cashflows are growing, leverage is falling and relative valuations are attractive,” said Lack. “Record U.S. crude oil output and growing natural gas exports will increase utilization of existing infrastructure, boosting cashflows. What used to be an income story now has a growth component.”
In November, U.S. oil production reached its highest levels since 1970 and is expected to top 11 million barrels per day in late 2019.
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