GSAM Energy & Infrastructure Team April 2018 Monthly Market Update
Table of Contents I. Master Limited Partnership (MLP) Market Update II. III. MLP Market Data Appendix & Disclosures 1
I. Master Limited Partnership (MLP) Market Update 2
Total Return (%) MLP Market Update April 2018 Market Review 12.0% Energy, WTI Crude Oil, and Broader Market Performance (Total Returns) 1 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 9.5% 8.1% 5.6% 0.4% -2.0% -4.0% -6.0% 29-Mar 5-Apr 12-Apr 19-Apr 26-Apr Alerian MLP Total Return Index (AMZX) WTI Crude Oil Energy Select Sector Index (IXE) S&P 500 Total Return Index (SPXT) In April, the MLP sector (as measured by the AMZX Index) gained 8.1%, while West Texas Intermediate (WTI) crude oil prices increased by 5.6% and the Energy Select Sector Index (IXE) rose 9.5%. The MLP sector s performance can be largely attributed to the following: Recovery Post the Federal Energy Regulatory Commission s (FERC) Announcement: In April, the AMZ posted the largest monthly gain year-to-date (YTD), after selling off 6.9% in March following the FERC s income tax allowance policy revision We believe the rally was a result of market participants digesting the potential impact of the FERC s announcement, revaluing each MLP with the understanding that the policy revision may likely leave most MLPs largely unaffected Strength in Crude Oil Prices and Broader Energy Sector: During April, crude oil prices reached $68/bbl, their highest level since December 2014 driven by robust demand growth and expectations of further supply disruptions due to increased global geopolitical tensions. Additionally, we saw improved sentiment in the broader energy sector, as measured by the IXE Index, due in part to the rebound in crude oil prices. Source: Bloomberg, Public Company Press Releases, and Goldman Sachs Asset Management (GSAM), data as of 30-Apr-2018. Past performance does not guarantee future results, which may vary. 1 WTI Crude Oil refers to Generic 1 st CL Future and is graphed based on price. 3
MLP Market Update Strong Fundamentals, Increased Focus on Returns, & Attractive Valuations We are constructive on the MLP sector as potential long-term growth in US oil and natural gas production may create a strong environment for midstream (transportation & storage) volumes, the primary driver of MLP cash flow growth Strong Fundamental Outlook: Due largely to declining production costs from technological advancements, North American liquids production may grow by nearly 40% through 2040 1, which is beneficial for midstream volumes Oil and natural gas production growth is expected to drive an 11.4% EBITDA CAGR from 2017 2019 for the Alerian MLP Index (AMZ) 2 US crude oil inventory levels are normalizing relative to their 5-year average, indicating that global demand is outpacing supply Increased Focus on Returns & Capital Discipline: To improve returns, MLPs are exercising greater capital discipline, moderating capital expenditures (CAPEX) as EBITDA grows due to increased volumes on existing assets and new projects coming online 3. This should lead to lower leverage and higher distribution coverage. We believe the sector is moving towards a self-funding model, resulting in less dependence on equity issuances to finance growth projects Attractive Relative Valuations 4 : EV/EBITDA: MLPs trade 2.1x below (cheaper than) the long-term average, potentially suggesting a ~31% price increase for the AMZ to return to historical trading levels Spread to 10-Year US Treasury: MLP yield spread is 81 basis points higher (cheaper) than the historical average, potentially suggesting a ~17% price increase for the AMZ to return to historical trading levels P/E: MLPs trade at 14.5x earnings, representing a 5.0x discount to their long-term average of 19.5x, potentially suggesting a ~35% increase in AMZ price levels Potential Risks to Constructive Thesis: Crude oil price collapse, fee pressure due to increased competition, environmental opposition to new projects, and FERC s policy Source: Bloomberg, Wells Fargo, and Goldman Sachs Asset Management (GSAM), data and views as of 30-Apr-2018. 1 Exxon Mobil 2017 The Outlook for Energy: A View to 2040. 2,3 Bloomberg Weighted Average Consensus earnings before interest, taxes, depreciation, and amortization (EBITDA) and capital expenditures (CAPEX) expectations, data as of 30-Apr-2018. 4 Refers to the period from 1Q11 to the present. Calculated as the appreciation of the initial equity component of an enterprise value using the 10.3x multiple to the final equity value component of an enterprise value using the 12.4x multiple, assuming an initial corporate capital structure of 65% equity and 35% debt and constant debt. CAGR: compound annual growth rate. EV/EBITDA: enterprise value over earnings before interest, taxes, depreciation, and amortization. P/E: price to earnings ratio. Past performance does not guarantee future results, which may vary. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. Goldman Sachs does not provide accounting, tax or legal advice. Definitions in appendix. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. 4
Millions of Barrels (MMbbls) Millions of Barrels (MMbbls) MLP Market Update Relatively Balanced Crude Oil Markets & Strong Commodity Prices US Crude Oil Inventories vs. 5-Yr Average OECD Crude Stocks vs. 5-Yr Average 160 140 120 Current Rolling 5-Yr Avg: 464.5 MMbbls 5-Yr Crude Stock Peak: 534.0 MMbbls Decline from Peak: 18.4% 350 250 5-Yr Avg: 4,344 MMbbls 5-Yr Crude Stock Peak: 4,690 MMbbls Decline from Peak: 7.4% 100 150 80 60 40 20 0-20 -40 2015 2016 2017 2018 50-50 -150-250 2014 2015 2016 2017 2018 US crude oil inventories and OECD stocks, which are used to gauge global crude oil balances, have converged to their key 5-year average levels as a result of OPEC production limits, a decline of global upstream investment, and robust global demand US crude oil inventories are now below their 5-year average and 98 MM barrels, or 18.4% below peak levels set in March 2017 OECD crude oil stocks, which are an indicator of global inventories, are now only 1.7% above their 5-year average, down 7.4% from peak levels set in July 2016, suggesting a balancing crude oil market On a days to cover basis, where the 5-year average is 30, OECD stocks are currently 1 day below average The reduction in US crude oil inventories and OECD stocks have helped stabilize WTI and Brent prices over $65/70/bbl, well above most US Exploration & Production (E&P) break-even levels Sources: Bloomberg and US Energy Information Administration (EIA), latest data available as of 30-Apr-2018. OECD: The Organisation for Economic Co-operation and Development. OPEC: Organization of the Petroleum Exporting Countries. 5
Million Barrels per Day (MMbpd) Billion Cubic Feet per day (Bcf/d) Billions of Dollars (Bn) MLP Market Update Increased US Production & EBITDA Growth Expectations Crude Oil Production Natural Gas Production Increasing MLP EBITDA Expectations 1 12.5 12.6% CAGR 6.4% CAGR 11.4% CAGR 12.0 84.0 $60.0 11.5 11.0 82.0 80.0 $50.0 10.5 78.0 $40.0 10.0 9.5 76.0 $30.0 9.0 8.5 74.0 72.0 $20.0 8.0 2016 2017 2018E 2019E 70.0 2016 2017 2018E 2019E $10.0 2016 2017 2018E 2019E We believe MLP fundamentals are attractive with continued production growth expected in crude oil and dry natural gas Domestic crude oil production has hit 10.3 MMbpd as of February 2018, up 13.2% year-over-year (YoY), marking a record level 2 Domestic dry natural gas production has hit 78.7 Bcf/d as of February 2018, up 10.0% YoY 1 Increased production may translate into strong EBITDA growth for MLPs as a result of ramping volumes on existing storage and transportation systems and new project completions From 2017 through 2019, the EIA expects a 12.6% and 6.4% compound annual growth rate (CAGR) for US crude oil and dry natural gas production, respectively 3 Sources: Bloomberg, US Energy Information Administration (EIA), and International Energy Agency (IEA), latest data available as of 30-Apr-2018. MMbpd: million barrels per day. 1 Bloomberg Consensus Expectations of the Alerian MLP Index constituents, as of 30-Apr-2018. 2 Audited production data is reported on a two-month lag by the EIA. 3 US Energy Information Administration (EIA). The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. 6
MLP Market Update Momentum has Continued EBITDA Results & 2018 Estimates for the Top 10 AMZ Constituents 1 Ticker Company Name Index Weight % Beat/Miss (1Q18) 2018E/2017 YoY EBITDA Growth 1 EPD Enterprise Products Partners LP 10.5% 11.0% 13.3% 2 MMP Magellan Midstream Partners LP 10.5% -2.9% 6.6% 3 ETP Energy Transfer Partners LP 9.9% 2.1% 15.7% 4 MPLX MPLX LP 7.1% 5.0% 63.4% 2 5 PAA Plains All American Pipeline LP 7.0% 3.9% 10.6% 6 WPZ Williams Partners LP 6.5% 1.6% 2.6% 3 7 BPL Buckeye Partners LP 4.3% -5.3% -0.8% 8 WES Western Gas Partners LP 3.4% -0.8% 13.7% 9 ANDX Andeavor Logistics LP 2.6% -0.2% 19.5% 10 EQM EQT Midstream Partners LP 2.3% 7.5% 32.3% Average 2.2% 17.7% Median 1.8% 13.5% Of the 42 MLPs in the Alerian MLP Index, 39 have reported 1Q18 earnings. Of those 39, 33 or 86.4% either met or beat consensus expectations 4 The median YoY (2018E vs. 2017) EBITDA growth for the top 10 AMZ constituents was 13.5% 5. We believe this estimated growth is supported by a healthy commodity production outlook and expectations for a ramp up in projects coming to service in 2018 6. Sources: GSAM and Bloomberg, data as of 30-Apr-2018. 1 Top 10 AMZ constituents by index weight as of 30-Apr-2018. 2 MLPX is expected to grow substantially as a result of acquisitions during 2016, 2017, and 2018, which required significant equity issuance. 3 YoY EBITDA growth figures account for WPZ s sale of its interest in the Geismar plant and complex in July 2017, for a transaction valued at $2.1 Bn. 4 Bloomberg consensus expectations. Beat is defined as >2% EBITDA surprise; miss defined as <-2% EBITDA surprise; and in-line defined as >-2% but <2% EBITDA surprise. 5 Bloomberg consensus expectations for each respective calendar year. 6 Supported by the EIA s production outlook. Past performance does not guarantee future results, which may vary. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. 7
MLP Market Update Sector Valuations Remain Attractive Across Multiple Metrics Sector Valuations are Below Historical Averages Valuation Method Current Sector Level Long-term Average 1 Premium / (Discount) 2 Price Revision to Historical Levels 3 Long-Term Average CAGR 1 2018E - 2020E Average Growth EV/EBITDA 4 High: 15.5x (2Q14) Current: 10.3x Low: 9.9x (4Q15) 12.4x (2.1x) 31.4% 6.4% (DCF/Unit) 8.4% (DCF/Unit) P/E High: 24.7x (3Q14) Current: 14.5x Low: 13.1x (1Q16) 19.5x (5.0x) 34.7% -5.4% (EPS) 9.1% (EPS) Yield Spread 5 High: 10.4% (1Q16) Current: 5.2% Low: 2.4% (2Q11) 4.4% (0.8%) 17.4% N/A N/A In our view, the sector remains attractive relative to historical levels on an EV/EBITDA, P/E, and yield spread basis. Sector yields are elevated, but are becoming increasingly more secure: As of 30-Apr-2018, the weighted average yield of the AMZ was 8.2%, which is supported by growing EBITDA expectations and strong distribution coverage 6 We believe there is a case for multiple expansion as evidenced by DCF/unit and EPS growth, which are expected to experience a 8.4% and 9.1% respective growth from 2018 to 2020 7 On a EV/EBITDA basis, MLPs also remain attractive relative to Utilities and REITs, trading at a 3.0x and 1.2x respective discount to their historical spreads Source: Bloomberg, Wells Fargo, and Alerian, data as of 30-Apr-2018. DCF: Discounted cash flow. EPS: Earnings per share. 1 Time period from 1Q11 to present. CAGR: compound annual growth rate. 2 Premium/Discount calculated by subtracting the long-term average from the current level. 3 Price revision to historical levels calculated as the appreciation of the initial equity component of an enterprise value using the 10.3x multiple to the final equity value component of an enterprise value using the 12.4x multiple, assuming an initial corporate capital structure of 65% equity and 35% debt and constant debt. 4 Based on Wells Fargo MLP universe. EV / 2018 Adjusted EBITDA: enterprise value divided by next twelve months earnings before interest, taxes, depreciation, and amortization. EBITDA is adjusted to reflect the portion of cash flow the General Partner (GP) is entitled to due to its incentive distribution rights (IDRs). Time period from 2Q06 (Alerian inception) to present. 5 Versus the US 10 Year Treasury Note. Calculated by taking the percent change of the sum of the current 10 Year US Treasury and the historical spread and the current MLP yield, assuming a constant Treasury yield and distributions. 6 Bloomberg Consensus EBITDA Expectations for top 10 AMZ constituents (by weight). 7 Wells Fargo. Multiple expansion: the increase in the level of valuation multiples. DCF/unit: discounted cash flow per unit. These examples are for illustrative purposes only and are not actual results. If any assumptions used do not prove to be true, results may vary substantially. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. Goldman Sachs does not provide accounting, tax or legal advice. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Past performance does not guarantee future results, which may vary. 8
MLP Market Update Capital Markets Activity Has Remained Muted Capital Market Activity (MM) April 2018 YTD 2018 2017 2016 2015 2014 2013 Equity Issuances Initial Public Offerings (IPOs) $ 0 $ 0 $ 2,198 $ 323 $ 4,053 $ 6,687 $ 8,324 Number of IPOs 0 0 5 1 8 20 21 Follow-ons (Traditional Equity) $ 0 $ 710 $ 4,359 $ 7,488 $ 9,986 $ 19,645 $ 19,531 Private Investment in Public Equities (PIPE) $ 0 $ 565 $ 1,289 $ 1,326 $ 1,368 $ 844 $ 1,132 Preferred Equity 1 $ 450 $ 1,165 $ 5,255 $ 7,947 $ 1,700 N/A N/A At-the-Market (ATM) Equity 2 $ 0 $ 0 $ 3,902 $ 8,943 $ 5,325 $ 8,463 $ 6,704 Total Equity $ 450 $ 2,440 $ 17,003 $ 26,027 $ 22,432 $ 35,639 $ 35,691 Debt Issuances $ 1,500 $ 19,175 $ 24,650 $ 19,520 $ 37,752 $ 37,750 $ 30,110 Mergers & Acquisitions $ 5,192 $ 15,429 $ 86,992 $ 91,767 $125,749 $173,899 $ 70,320 In April, there were no initial public offerings (IPOs), no private investments in public equity (PIPEs), $450 MM in preferred equity issuances, $1,500 MM in debt issuances, and $5,192 MM in announced mergers and acquisitions The most notable transaction during the month was EQT Midstream Partners LP (EQM) agreeing to acquire Rice Midstream Partners (RMP) for ~$2,400 MM. Additionally, EQT GP Holdings (EQGP) agreed to acquire RMP s Incentive Distribution Rights for ~$937 MM. Another notable transaction during the month was the completion of Archrock Inc s (AROC) merger with Archrock Partners (APLP), where AROC agreed to acquire the outstanding common units of APLP for a transaction valued at ~$607 MM Source: Bloomberg, GSAM, Company filings, and Barclays, data as of 30-April-2018. 1 Preferred equity issuances before 2015 were not common and there is limited data available for these years. 2 At-the-Market issuances (ATM) are when exchange-listed companies incrementally sell newly issued shares into the secondary trading market at prevailing market prices. These transactions are only disclosed in companies financial reports, and are thus lagged at least 1 quarter. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Follow-on offerings are issuances of equity after an initial public offering. Incentive Distribution Rights (IDRs): give a limited partnership's general partner an increasing share in the incremental distributable cash flow the partnership generates. General partners: are responsible for managing the day-to-day operations of MLPs. Economic interest refers to a substantial financial interest in investments or company. Non-economic interest refers to non-financial interests in investments or company. Past data is not indicative of future results, which may vary. 9
Millions of Dollars (MM) MLP Market Update April: Increase in Fund Flow Activity Sector Fund Flows ($MM) $1,200 1,132 $1,000 $800 $600 $400 $200 347 463 557 137 987 336 633 450 844 1,010 995 547 383 596 5-Year Monthly Avg: $950 MM 629 2017 Monthly Avg: $488 MM 349 412 326 130 544 415 $0 -$200-65 -68 -$400 -$600 -$800 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18-305 ETF/ETN Open-End Funds 2017 Monthly Avg: $488 MM 5-Yr Monthly Avg: $950 MM In 1Q18, the sector posted $759 MM of net inflows, marking the worst first quarter of sector flows since the energy downturn in 2015 Fund flow momentum recovered in April, as investor sentiment in the energy sector improved and crude oil prices rebounded April posted net inflows of $415 MM, only 15% below the 2017 monthly average of $488 MM, and marking the second largest month of inflows in 2018 Source: US Capital Advisors, GSAM, and Barclays, data as of 30-Apr-2018. Past performance does not guarantee future results, which may vary. 10
AMZ Index MLP Market Update MLPs Have Performed Well in Rising Rate Environments AMZ Index Total Returns & 10-Yr US Treasury Yields AMZX Total Returns 95.4% 10.6% 30.0% -2.3% 2,000 6.0% 1,800 1,600 1,400 1,200 1,000 800 600 5.0% 4.0% 3.0% 2.0% 10-Year US Treasury Yield 400 200 1.0% 0 0.0% Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Rising Rates AMZ Index 10-Year US Treasury Yield Traditionally, the prices of high yielding assets are negatively correlated to rising interest rates However, since inception of the AMZ, the index has returned an average of 33.5% in rising rate environments, while returning an average of -6.3% in falling rate environments We believe positive returns during periods of rising interest rates reflect a strong relationship between MLPs and general economic conditions, rather than a relationship between MLPs and interest rates Additionally, the majority of MLPs debt is fixed and termed out (~20% variable rate), therefore we believe it will take a while for the rate increase to filter into rising cost of capital Sources: GSAM, and Bloomberg, data as of 31-Dec-2017. Term-out is a financial concept used to describe the transfer of debt within a company's balance. This is done through the capitalization of short-term debt to long-term debt. Past performances does not guarantee future results, which may vary. Troughs are defined as periods in which the 10-Yr US Treasury yield falls by more than 1.0% before subsequently rising more than 1.0%. Peaks are the max values in between troughs. Past correlations are not indicative of future correlations, which may vary. 11
II. MLP Market Data 12
MLP Market Data MLPs Trade at Discount to Other Income-Oriented Asset Classes Yields & Spreads vs. the Alerian MLP Index (AMZ) 9.0% 8.0% AMZ Weighted Avg 8.16% S&P 500 10-Year US Treasury High Yield Bonds High Grade Bonds Municipal Bond Utilities REITs 172 bps Discount 81 bps Discount 199 bps Discount 179 bps Discount 130 bps Discount 183 bps Discount 117 bps Discount 7.0% 6.0% 6.25% 5.0% 4.0% 172 bps Discount 4.74% 3.62% 4.21% 3.0% 2.0% 1.96% 2.95% 2.53% 1.0% 0.0% -1.0% Current Yield Current Spread 7-Year Average (2011 through 2018) As of 30-Apr-2018, the market cap weighted average yield of the AMZ constituents was 8.2%, while the median yield was 8.8% 5 of the 42 names in the AMZ were trading with yields less than 5.5%, 26 of the 42 with yields in excess of 7.5% with the remaining 11 names yielding between 5.5% and 7.5% Source: Bloomberg, GSAM, Alerian, data as of 30-Apr-2018. Current yield: yield as of 30-Apr-2018. Past performance does not guarantee future results, which may vary. 13
MLP Market Data Relevant Indices Performance Index and Spot Returns (In Percent) Ticker Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2017 2016 2015 2014 2013 2012 Alerian MLP Index (Total Return) AMZX 5.8-9.7-6.9 8.1 -- -- -- -- -- -- -- -- -3.9-6.5 18.3-32.6 4.8 27.6 4.8 S&P 500 (Total Return) SPXT 5.7-3.7-2.5 0.4 -- -- -- -- -- -- -- -- -0.4 21.8 12.0 1.4 13.7 32.4 16.0 AMEX Energy Select Index IXE 3.7-10.8 1.7 9.5 -- -- -- -- -- -- -- -- 3.0-0.9 28.2-21.6-8.5 26.4 5.4 PHLX Utility Sector Index UTY -3.3-3.9 3.7 2.1 -- -- -- -- -- -- -- -- -1.6 12.8 17.4-6.3 28.9 11.0-0.6 NAREIT Index FNERTR -2.9-7.3 3.7 0.5 -- -- -- -- -- -- -- -- -6.2 8.7 8.6 2.8 28.0 2.9 19.7 Crude Oil (Spot) 7.1-4.8 5.4 5.6 -- -- -- -- -- -- -- -- 13.5 12.5 45.0-30.5-45.9 7.2-7.1 Natural Gas (Spot) 8.1-20.4 5.6-2.1 -- -- -- -- -- -- -- -- -22.3-19.5 59.2-22.8-31.1 26.8 14.9 On a total return basis, the AMZ contributed 8.1% during April, bringing the 2018 total return to -3.9% West Texas Intermediate (WTI) crude oil prices increased during the month, finishing up 5.6%, bringing the 2018 total return to 13.5% The broader market, as measured by the S&P 500, returned 0.4% over the month, and -0.4% for YTD 2018 Source: Bloomberg, GSAM, data as of 30-Apr-2018. Past performance does not guarantee future results, which may vary. 14
MLP Market Data Performance: MLPs & Subsectors Performance by Sub-Sector (Total Return %) Worst & Best Performing MLPs (Total Return %) Production + Mining Frac Sand 20.8% Refining 17.0% Regasification 16.6% Marine Transportation Petroleum 12.1% Production + Mining Hydrocarbon 11.8% Mineral Interest 11.7% Storage Liquids 9.8% Services Midstream 8.4% Services Upstream 8.0% Other Rail Terminaling 7.7% Pipeline Transportation Natural Gas 7.4% Marketing Retail 7.1% Other Liquefaction 6.8% Marketing Wholesale 6.7% Gathering + Processing 6.1% Pipeline Transportation Petroleum 3.8% Marine Transportation LNG 2.2% Power Generation 0.9% Production + Mining Coal 0.6% Catalytic Conversion -2.4% -10% -5% 0% 5% 10% 15% 20% 25% CVRR 31.8% APLP 25.2% TOO 22.9% LGCY 21.9% SNMP 20.8% DM -5.5% KRP -6.6% UAN -12.6% SXCP -13.8% DLNG -17.4% -25% -15% -5% 5% 15% 25% 35% During the month, the Production + Mining Frac Sand sub-sector was the best performer, up 20.8%, while the Catalytic Conversion subsector was the worst performer, down 2.4% We continued to see dispersion across the universe in April. The spread between the worst and best performing sub-sector was 23.2%, while the spread between the best and worst performing MLP was 49.2% during the month. Source: Bloomberg, and GSAM, excludes securities with less than $100 MM market cap, data as of 30-Apr-2018. Please see page 18 for the list of full names of the MLP tickers shown above. Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. Past performance does not guarantee future results, which may vary. 15
III. Appendix Disclosures 16
Disclosures Definitions Relevant Indices: The Alerian MLP Total Return Index is the leading gauge of energy Master Limited Partnerships (MLPs). The float-adjusted, capitalization-weighted index, whose constituents represent approximately 85% of total float-adjusted market capitalization, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX). Alerian MLP Index, Alerian MLP Total Return Index, AMZ and AMZX are trademarks of Alerian and their use is granted under a license from Alerian or Source: Alerian. The Cushing Royalty Trust and Upstream MLP Indices (CRTY and CRTYTR) are market capitalization weighted indices that (respectively) reflect the Price and Total Return performance of Royalty Trusts and MLPs (Master Limited Partnerships) involved in the following main business segments: Exploration & Production and Natural Resources. This includes Royalty Trusts that are structured as MLPs. The S&P 500 Index is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of US equities and is meant to reflect the risk/return characteristics of the large cap universe. The Bloomberg Barclays US Aggregate Index covers the USD-denominated, investment-grade, fixed-rate, taxable bond market of SEC-registered securities. The index includes bonds from the Treasury, Government-Related, Corporate, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS sectors. The US Aggregate Index is a component of the US Universal Index in its entirety. The index was created in 1986, with index history backfilled to January 1, 1976. The Bloomberg Barclays US Corporate High-Yield Index covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody s, Fitch, and S&P is Ba1/BB+/BB+ or below. The index excludes Emerging Markets debt. The index was created in 1986, with index history backfilled to January 1, 1983. The US Corporate High-Yield Index is part of the US Universal and Global High-Yield Indices. FTSE/NAREIT North America Index gauges the performance of companies that develop and own real estate in North America. The Standard & Poor s S&P 500 Index is an index based on the prices of the securities of 500 different companies, 400 of which are industrial, 40 of which are utility, 40 of which are financial and 20 of which are transportation companies The BofA Merrill Lynch US Treasuries (10Y) Index is an unmanaged index that tracks the performance of the three most recently issued 10-year US Treasury notes iboxx $ Liquid High Yield Index is a rules-based index consisting of the most liquid and tradable US dollar-denominated, high yield corporate bonds for sale in the United States West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing, it is described as light because of its low density, and sweet because of its low sulfur content. WTI is the underlying commodity of New York Mercantile Exchange s oil futures contracts. AMEX Energy Select Index (IXE) is a modified market capitalization-based index intended to track the movements of companies that are components of the S&P 500 and are involved in the development or production of energy products PHLX Utilitiy Sector Index (UTY) is a market capitalization-weighted index composed of geographically diverse public utility stocks Crude Oil Index (CL1) tracks crude oil futures contracts that trade in units of 1,000 barrels, and the delivery point is Cushing, Oklahoma, which is also accessible to the international spot markets via pipelines Natural Gas Index (NG1) tracks natural gas futures trading in units of 10,000 million British thermal unites (mmbtu). The price is based on delivery at the Henry Hub in Louisiana. Indices are unmanaged. Investors cannot invest directly in indices. 17
Disclosures Definitions Upstream: Upstream MLP investments include companies that are engaged in the exploration, recovery, development and production of crude oil, natural gas and natural gas liquids. An upstream MLP's cash flow and distributions are driven by the amount of oil, natural gas, natural gas liquids and crude oil produced and the demand for and price of such commodities. Midstream: Midstream MLP investments include companies that are engaged in the treatment, gathering, compression, processing, transportation, transmission, fractionation, storage and terminalling of natural gas, natural gas liquids, crude oil, refined products or coal. Midstream MLPs may also operate ancillary businesses including marketing of energy products and logistical services. Downstream: Downstream MLP investments include companies that are primarily engaged in the processing, treatment, and refining of natural gas liquids and crude oil, marketing and other "end-customer" distribution activities relating to refined energy sources PIPE: A PIPE is a private investment in public equity where stock is issued privately by a publicly traded company for purposes of raising capital. These holdings include restricted and unrestricted securities. Restricted securities have been fair valued in accordance with procedures approved by the Board of Trustees. Follow-on Offerings: issuances of equity after an initial public offering Spread: A spread is the difference between two numbers, usually between two types of yields such as the yield of a security above a 10 year treasury bill Standard Deviation: A statistical measure of volatility indicates the risk associated with a return series Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole Correlation: is a measure of the amount to which two investments vary relative to each other Simplification Transaction: A corporate action which results in one or more changes to corporate structure and/or the removal of incentive distribution rights Consolidation Transaction: A corporate action where one entity acquires and/or mergers with another Incentive Distribution Rights (IDRs): These give a limited partnership's general partner an increasing share in the incremental distributable cash flow the partnership generates. This occurs alongside of per-unit distribution increases to the limited partners. The general partner's share of incremental distributable cash flow usually starts at 2% and climbs to higher levels such as 20% or 50%. Basis point (BPS): refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. List of relevant MLP tickers and names: CVRR CVR Refining LP DM Dominion Energy Midstream APLP Archrock Partners LP KRP Kimbell Royalty Partners LP TOO Teekay Offshore Partners LP UAN CVR Partners LP LGCY Legacy Reserves LP SXCP Suncoke Energy Partners LP SNMP Sanchez Midstream Partners DLNG Dynagas LNG Partners LP 18
Disclosures Risk Considerations Views are as of 3/31/2018 unless noted otherwise and are subject to change in the future. Master Limited Partnerships ("MLPs") may be generally less liquid than other publicly traded securities and as such can be more volatile and involve higher risk. Investments in securities of an MLP involve risks that differ from investments in common stocks, including risks related limited control and limited rights to vote on matters affecting the MLP, risks related to potential conflicts of interest between the MLP and the MLP s general partner, cash flow risks, dilution risks and risks related to the general partner s right to require unit holders to sell their common units at an undesirable time or price. MLPs are also generally considered interest-rate sensitive investments. During periods of interest rate volatility, these investments may not provide attractive returns. Investments in MLPs are subject to certain risks, including risks related to limited control and limited rights to vote, potential conflicts of interest, cash flow risks, dilution risks, limited liquidity and risks related to the general partner s right to force sales at undesirable times or prices. MLPs may also involve substantially different tax treatment than other equity-type investments, and such tax treatment could be disadvantageous to certain types of investors, such as retirement plans, mutual funds, charitable accounts, foreign investors, retirement accounts or charitable entities. In addition, investments in MLPs may trigger state tax reporting requirements. Generally, a master limited partnership ( MLP ) is treated as a partnership for Federal income tax purposes. Therefore, investors in an MLP may be subject to certain taxes in addition to Federal income taxes, including state and local income taxes imposed by the various jurisdictions in which the MLP conducts business or owns property. In addition, certain tax-exempt investors in an MLP, such as tax-exempt foundations and charitable lead trusts, may incur unrelated business taxable income ( UBTI ) with respect to their investment. UBTI may result in increased Federal, and possibly state and local, tax costs, and may also result in additional filing requirements for tax exempt investors. Non-US investors may be subject to US taxation on a net income basis and have US filing obligations as a result of investing in MLPs. The tax reporting information for MLPs generally is provided to investors on an annual IRS Schedule K-1, rather than an IRS Form 1099. To the extent the Schedule K-1 is delivered after April 15, you may be required to request an extension to file your tax returns. Stocks: Stock investments are subject to market risk, which means that the value of the securities may go up or down in response to the prospects of individual companies, particular sectors and/or general economic conditions REITs: Investments in real estate companies, including REITs or similar structures are subject to volatility and additional risk, including loss in value due to poor management, lowered credit ratings and other factors Bonds: Fixed income investing involves interest rate risk. When interest rates rise, bond prices generally fall. High Yield: Below investment grade (high yield) bonds are more at risk of default and are subject to liquidity risk 10-Year US Treasuries: A 10-Year Treasury is a debt obligation backed by the United States government and its interest payments are exempt from state and local taxes. However, interest payments are not exempt from federal taxes. Exchange-Traded Funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor s shares, when redeemed, or sold, may be worth more or less than their original cost. ETFs may yield investment results that, before expenses, generally correspond to the price and yield of a particular index. There is no assurance that the price and yield performance of the index can be fully matched. 19
Disclosures General Disclosures THIS MATERIAL IS FOR INFORMATIONAL PURPOSES ONLY AND IS PROVIDED SOLELY ON THE BASIS THAT IT WILL NOT CONSTITUTE INVESTMENT OR OTHER ADVICE OR A RECOMMENDATION RELATING TO ANY PERSON S OR PLAN S INVESTMENT OR OTHER DECISIONS, AND GOLDMAN SACHS IS NOT A FIDUCIARY OR ADVISOR WITH RESPECT TO ANY PERSON OR PLAN BY REASON OF PROVIDING THE MATERIAL OR CONTENT HEREIN INCLUDING UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 OR DEPARTMENT OF LABOR REGULATIONS. PLAN SPONSORS AND OTHER FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL COURSE OF ACTION. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice. Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction. References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. The index composition may not reflect the manner in which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark. Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only. 20
Disclosures General Disclosures Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur. This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by GSAM and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. Goldman Sachs & Co. LLC, member FINRA. 2018 Goldman Sachs. All rights reserved. Date of First Use: 05/09/2018 Rubi ID: 130642 21