Jeremy Goff is director of strategic ventures for Tortoise Capital Advisors. ETF.com recently caught up with him to discuss the outlook for oil, master limited partnerships, and the Tortoise North American Pipeline Fund (TPYP), which turns one year old at the end of the month.
ETF.com: Were you surprised by the oil rally this year?
Jeremy Goff: We knew that at some point there wasn't going to be enough supply to keep up with global demand.
As we move into the summer, demand starts to spike with the driving season. At the same time, a number of rigs have come down in the United States and production has come off.
Also, OPEC is operating at what we believe to be max capacity. Those countries are really not in a position to be able to produce any more than they already are. That makes the United States the swing producer.
ETF.com: Are prices now high enough to see the U.S. producers start to drill again and ramp up production?
Goff: It really depends on where they're drilling. It's a basin-by-basin-dependent sort of question. For the players who are operating in the core acreage of the Permian, these prices are profitable for them to drill. We could see a pickup of rig production in those specific areas if prices maintain above the $50 level.
That said, you're not going to see production levels pick up to the pace they were prior to the drop in oil prices. They're not going by any means be at the $100 oil level that we saw, but you should see them start picking up again incrementally in some of these core basins.
ETF.com: MLPs were hammered last year, but they've since rebounded nicely this year. What's driving these volatile moves?
Goff: Last year, a lot of people threw the baby out with the bathwater. Historically, MLPs and oil prices have tended to be less-correlated. Yet during the crash in oil prices, they were moving in tandem.
At the end of the day, regardless of where oil prices sit, the energy infrastructure is going to be necessary. Whether we're bringing oil in from outside the country or we're producing internally, that pipeline system is a critical piece of the infrastructure.
We're still projecting about $120 billion in projects through 2018 to be fulfilled. It's still a very strong growth story in the MLP space. It's just there was some near-term correlation with oil prices, but they've decoupled and we've seen performance turn around.
ETF.com: Your ETF, the Tortoise North American Pipeline Fund (TPYP) is one of the best performers in the midstream ETF space this year, with a year-to-date gain of more than 25%. What differentiates it from similar ETFs?
Goff: TPYP has exposure not just to MLPs but to pipelines in general. That's a big differentiator.
It's structured as an RIC [regulated investment company], which means it's limited to 25% MLPs. We did that because it's a much more tax-efficient structure to access the pipeline space.
When you look at the pure MLP funds, there's a significant tax drag associated with the deferred tax liability when the market is in an upswing. We don't have that particular issue.
We're getting exposure to MLPs and pipelines without having to deal with the deferred tax liability issue. But we're also getting exposure to the broader universe along with that. So instead of just 30 MLPs, you get exposure to nearly 100 pipeline companies.
Contact Sumit Roy at [email protected].