January 15, 2016 Comments (0) Blog

The History of Master Limited Partnerships

Bradford Drilling
(Last Updated On: January 26, 2017)

What is a Master Limited Partnership (MLP)?

Master Limited Partnerships (“MLPs”) are limited partnerships that are publicly traded.  They were designed to combine the tax benefits of limited partnerships with the liquidity of publicly traded securities.

In 1981, Apache Corporation was the first company to form an MLP in the United States.  The MLP it formed was the Apache Petroleum Company (“APC”).  The favorable tax treatment and the success of APC resulted in other oil and gas companies forming MLPs.  There were followed by real estate companies, and by the mid-1980s a variety of other industries adopted the structure.

Due to concerns that the popularity of MLPs was eroding the corporate tax base, Congress enacted section 7704 in the Omnibus Budget Reconciliation Act of 1987.  It provided, as a general rule, that publicly traded partnerships would be treated as corporations.  However, Congress provided an exception to the rule if 90 percent or more of the partnership’s gross income is “qualifying income.” Qualifying income is generally passive-type income, such as interest, dividends, and rent.

It also provided that qualifying income includes income and gains derived from the exploration, development, mining or production, processing, refining, transportation, or marketing of minerals or natural resources.  The terms “mineral or natural resource” are defined as any product for which a deduction for depletion is allowed under section 611, except soil, sod, dirt, turf, water, mosses, or minerals from sea water, the air, or other similar inexhaustible sources.

The SteelPath Mutual Fund Family (n/k/a OppenheimerFunds) introduced the first MLP mutual fund in May of 2010.  Alerian launched the first MLP exchange traded fund, the Alerian MLP ETF, on August 25, 2010.

Regulations

In May of 2015, the Treasury Department and the IRS published proposed regulations relating to qualifying income from activities of publicly traded partnerships with respect to minerals or natural resources in the Federal Register.  Certain activities were also described as being activities intrinsic to section 7704(d)(1)(E) in the proposed regulations.

The requirements for an activity to be considered a qualifying activity are clarified and the terms listed in section 7704(d)(1)(E) are defined in the proposed regulations.  Further, the publication included certain activities that do-not qualify, including:

  • Timber processing, including pulp, paper, paper products, treated lumber, oriented strand board, plywood, and treated poles;
  • Olefins produced from assets not depreciated under MACRS class 13.3 (Petroleum Refining); and
  • the production and sale of methanol.

The proposed regulations specify three requirements for an activity to be considered intrinsic in the proposed regulations, including:

  1. Specialized – The personnel performing the activity and any property used in the activity or sold to the customer performing the section 7704(d)(1)(E) activity must be “specialized” (e.g., personnel have received training unique to the mineral or natural resource). The preamble provides as an example of a non-intrinsic activity, catering services provided on a drilling site.
  2. Essential – The activity must be essential to the section 7704(d)(1)(E) activity, meaning that it must be necessary to physically complete the activity or to comply with federal, state or local law. The preamble provides as an example, water delivery and disposal services for water provided for use in fracking as an essential activity.
  3. Significant services – The preamble explains that a partnership provides “significant services” if its personnel have an ongoing or frequent presence at the site of the section 7704(d)(1)(E) activity. The IRS and Treasury have specifically requested comments as to whether and how this requirement can be set forth in an objective standard.

MLPs popularity has gone up and down since their introduction.  The vast majority of MLPs have been and continue to be pipeline businesses because of the general nature of the MLP structure and the strict requirements imposed them.  There are well over one hundred MLPs currently traded.

Currently Traded MLPs

MLP Sector Ticker Symbol
8Point3 Energy Partners Solar Energy CAFD
Access Midstream Natural Gas Midstream ACMP
Alliance Bernstein Financial Services AB
Alliance Holdings GP LP Coal AHGP
Alliance Resource Partners Coal ARLP
Alon Partners USA Refiner ALDW
American Midstream Partners Natural Gas Midstream AMID
Amerigas Partners Propane Marketing APU
Antero Midstream Partners Natural Gas Midstream AM
Arc Logistic Partners Crude/Refined Storage ARCX
Archrock Partners (was Exterran Partners) Contract Services Gas APLP
Ares Management LP Investment ARES
Atlas Energy Group LLC Pipelines and Production ATLS
Atlas Pipeline Partners Natural Gas Midstream APL
Atlas Resource Partners (Monthly) Oil and Gas Production ARP
Black Stone Minerals Oil and Gas Properties BSM
Blackstone Group Financial Services BX
Blueknight Energy Partners Oil and Gas Services BKEP
Boardwalk Pipeline Partners Natural Gas Midstream BWP
Breitburn Energy LP (Monthly) Oil and Gas Production BBEP
Brookfield Infrastructure Partners Utility/Energy/Timber BIP
Brookfield Renewable Energy Partners Renewable Energy BEP
Buckeye Partners Refined Product Pipeline BPL
Calumet Specialty Products LP Specialty Oil Products CLMT
Capital Products Partners Tanker Shipping CPLP
Carlyle Group LP Diversified CG
Cedar Fair Partners Amusement Parks FUN
Cheniere Energy Partners Natural Gas Midstream CQP
Cheniere Energy Partners Holdings Natural Gas Midstream CQH
Ciner Resources (was OCI Resources) Mining CINR
CNX Coal Resources LP Coal CNXC
Columbia Pipeline Partners Natural Gas Midstream CPPL
CONE Midstream Partners Midstream Oil and Gas CNNX
Crestwood Equity Partners Natural Gas Midstream CEQP
Crestwood Midstream Natural Gas Midstream CMLP
CrossAmerica Partners Motor Fuel Distribution CAPL
CSI Compressco Oil and Gas Services CCLP
CVR Partners LP Nitrogen Fertilizer UAN
CVR Refining LP Refiner CVRR
DCP Midstream Partners Natural Gas Midstream DPM
Delek Logistics Partners Oil Gathering/Pipeline DKL
Dominion Midstream Partners LNG Import/Export Pipel DM
Dorchester Minerals Oil and Gas Production DMLP
Dynagas LNG Partners LP Liquid Natural Gas Ship DLNG
Eagle Rock Energy Partners Natural Gas Prod, Pipel EROC
Emerge Energy LP Frac Sand EMES
Enable Mistream Partners LP Midstream Gas and Oil ENBL
Enbridge Energy Partners Oil/Gas Pipelines EEP
Energy Transfer Equity Partners Natural Gas Midstream ETE
Energy Transfer Partners Natural Gas Midstream ETP
Enlink Midstream LLC (General Par) Natural Gas Midstream ENLC
Enlink Midstream LP Natural Gas Midstream ENLK
Enterprise Products Partners Natural Gas Midstream EPD
Enviva Partners Biomass Energy EVA
EQT Midstream LP Natural Gas Midstream EQM
EV Energy Partners LP Oil and Gas Production EVEP
Ferrellgas Partners Propane Marketing FGP
Foresight Energy LP Coal Production FELP
GasLog Partners LNG Shipping GLOP
Genesis Energy Partners Oil/Gas Pipelines GEL
Global Partners Oil & Gas Marketing GLP
Green Plains Partners Ethanol Distribution GPP
Hi-Crush Partners Frac Sand HCLP
Hoegh LNG Partners (a MLP) LNG Services HMLP
Holly Energy Partners Crude & Refined Pipel HEP
Icahn Enterprises LP Diversified IEP
JP Energy Partners LP Oil and Gas Midstream JPEP
Kinder Morgan Energy Partners Pipelines/Storage KMP
KKR and Co. Financial KKR
KNOT Offshore Shuttle Tankers KNOP
Landmark Infrastructure Partners Cell Tower Real Estate LMRK
Legacy Reserves LP Oil and Gas Production LGCY
Linn Energy LLC (Monthly) Oil and Gas Production LINE
LinnCO LLC (Monthly) Oil and Gas Production LNCO
LRR Energy LP Oil and Gas Production LRE
Magellan Midstream Partners Crude & Refined Pipel MMP
Markwest Energy Partners Natural Gas Midstream MWE
Marlin Midstream LP Natural Gas Midstream FISH
Martin Midstream Partners Natural Gas Midstream MMLP
Memorial Production Partners Oil and Gas Production MEMP
Mid-Con Energy Partners Oil and Gas Production MCEP
Midcoast Energy Partners Natural Gas Midstream MEP
MPLX LP Crude Oil Midstream MPLX
Natural Resource Partners Coal NRP
Navios Maritime Partners Dry Bulk Shipping NMM
Navios Maritime Midstream Partners Tanker Shipping NAP
New Source Energy Partners LP Oil and Gas Production NSLP
NGL Energy Partners Oil and Gas Midstream NGL
Niska Gas Storage Partners LLC Natural Gas Midstream NKA
Northern Tier Energy LP Refiner NTI
Nustar Energy Partners Midstream Refined Prod NS
Oaktree Capital Group Investments OAK
OCI Partners Methanol/Ammonia OCIP
OilTanking Partners Oil/Gas Storage OILT
Oneok Partners Natural Gas Midstream OKS
PAA Natural Gas Storage Natural Gas Midstream PNG
PBF Logistics Partners Oil/Refined Midstream PBFX
Penn-Tex Midstream Partners Natural Gas Midstream PTXP
Petrologistics Propylene Production PDH
Phillips 66 Partners LP Oil/Refined Pipelines PSXP
Pioneer Southwest Energy Oil and Gas Production PSE
Plains All American Pipeline Oil/Gas Pipelines PAA
Pope Resources Timber POPE
PVR Partners Coal/Mid Stream Nat Gas PVR
QEP Midstream Oil and Gas Midstream QEPM
QR Energy (Monthly) Oil and Gas Production QRE
Regency Energy Partners LP Natural Gas Midstream RGP
Rentech Nitrogen LP Fertilizer RNF
Rhino Resources LP Coal RNO
Rice Midstream Partners Natural Gas Midstream RMP
Rose Rock Midstream LP Oil Pipelines and Storage RRMS
Shell Midstream Partners Crude/Refined Pipelines SHLX
Southcross Energy LP Natural Gas Midstream SXE
Spectra Energy Partners Natural Gas Midstream SEP
Sprague Resources Wholesale Fuels SRLP
Star Gas Partners Heating Oil SGU
Stonmor Partners Cemeteries STON
Suburban Propane Partners Fuel Distribution SPH
Summit Midstream Partners Natural Gas Midstream SMLP
SunCoke Energy Partners LP Coke Manufacturing SXCP
Sunoco Logistic Partners Crude & Refined Pipel SXL
Sunoco LP (was Susser) Fuel Distribution SUN
Tallgrass Energy LP Natural Gas Midstream TEP
Tallgrass Energy GP Natural Gas Midstream TEGP
Targa Resource Partners LP Natural Gas Midstream NGLS
TC Pipelines Natural Gas Midstream TCP
Teekay LNG Partners Liquid Natural Gas Ship TGP
Teekay Offshore Partners LP Shuttle Tankers TOO
Terra Nitrogen Fertilizer TNH
Tesoro Logistics LP Oil Terminals TLLP
Transmontaigne Partners Refined Product Storage TLP
Transocean Partners LLC Deepwater Driller RIGP
USA Compression Partners Natural Gas Midstream USAC
Valero Energy Partners LP Midstream Crude Oil VLP
Vanguard Natural Res LLC (Monthly) Oil and Gas Production VNR
Viper Energy Oil and Gas Royalty VNOM
VTTI Energy Partners Storage VTTI
Western Gas Equity Partners Natural Gas Midstream WGP
Western Gas Partners Natural Gas Midstream WES
Western Refining Logistics Gas/Oil Midstream WNRL
Westlake Chemical Partners Ethylene Production WLKP
Westmoreland Resource Partners Coal WMLP
Williams Partners Natural Gas Midstream WPZ
World Point Terminals LP Crude and Refined Storage WPT

The White Law Group continues to investigate the liability that brokerage firms may have for improperly recommending MLP investments (and, in particular) oil and gas MLPs.

Free Consultation

Brokerage firms that sell oil and gas MLPs are required to perform adequate due diligence on the investments to ensure a reasonable likelihood of success, and to evaluate whether the investments are suitable in light of the client’s age, net worth, investment experience, and investment objectives. Firms that fail to perform adequate due diligence, or that make unsuitable recommendations, can be held responsible for losses in a FINRA arbitration claim.

If you suffered losses investing in an oil and gas MLP and would like to discuss your litigation options, please call The White Law Group at 888-637-5510 for a free consultation.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.  The firm represents investors throughout the country in FINRA arbitration claims against their brokerage firm.

For more information on The White Law Group, visit www.whitesecuritieslaw.com.