MLPs reemerging in US energy business

The market value of US energy MLPs has increased sevenfold in 8 years, reports Jon McCarter, a partner in Ernst & Young Transaction Advisory Services.

By OGJ editors
HOUSTON, Oct. 23 -- The market value of US energy master limited partnerships (MLPs) has increased sevenfold in 8 years, reports Jon McCarter, a partner in Ernst & Young Transaction Advisory Services.

Popular in the 1980s in upstream and midstream parts of the oil and gas industry, the MLP has reemerged and expanded into other energy activities, McCarter said at an Ernst & Young conference Oct. 17.

"Energy MLP market capitalization increased from less than $20 billion in 2000 to almost $140 billion in 2007," he said.

Although the MLP largely faded from the oil and gas industry as crude oil prices collapsed in the late 1980s, tax advantages revived it as the midstream industry reorganized after the Enron collapse early this decade. Unlike that of corporations, the income of energy MLPs is taxed only once.

McCarter said MLP growth now comes from a strong commodities market, low interest rates, and favorable regulations.

"Despite traditional midstream focus, the MLP market experienced increased diversification into other natural resource sectors such as propane, shipping, coal, refining, and LNG," he said.

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