Some observers caution on potential changes to tax rules
A string of energy-sector initial public offerings for master limited partnerships (MLPs) has closed in 2007, with at least six others set to launch. The MLP boomlet among upstream and midstream players is zipping along despite market volatility and questions about MLPs' continued ability to deliver attractive payouts.
MLP IPOs in September included the September 12 Encore Energy Partners offering of 9 million units at $21 each. That same day, Williams Pipeline Partners registered a proposed $314 million MLP.
It's a large and growing market with no independent benchmark.
--index strategist Srikant Dash
Other recently launched MLP IPOs include EV Energy Partners, Breitburn Energy Partners, Constellation Energy and Legacy Reserves.
Independent producer Quicksilver Resources launched an MLP IPO for its gas services unit in early August with each unit fetching $21. In mid-September, Quicksilver sold properties to Breitburn for $750 million in cash and 21.3 million units of Breitburn's own MLP vehicle.
Others expected to launch publicly traded MLPs soon include EXCO Partners, which aims to raise $1.72 billion, Chesapeake Energy, El Paso Pipeline Partners, and Plains GP Holdings. Pioneer Natural Resources in April announced it would launch two MLPs. (See list of MLP IPOs made in 2007.)
Morgan Stanley's Sean Maher, who writes a closely followed MLP column, said total market cap for energy sector MLPs is roughly estimated at $130 billion. Nearly 25 MLPs have gone public since 2005. "There's certainly been (general) stock market anxiety," Maher said. But "if there's been any delay in deals, it's because (of) not wanting to spook the market" with the perception of a flood of MLP equity, he said.
Rick Buterbaugh, vice president of investor relations for corporate planning at Quicksilver, said investor interest is divided between institutions like pension funds and retail investors. Its MLP launch was seen to be unscathed by market volatility. "There's significant interest for the product," he said, citing Quicksilver's Barnett Shale exploration and what he calls Quicksilver's organic growth.
The popularity of MLPs prompted ratings agency Standard & Poor's, a sister company of Platts, both of which are owned by the McGraw-Hill Companies, to launch in September an energy team MLP index, said index strategist Srikant Dash. "It's a large and growing market with no independent benchmark," Dash said.
Others with active MLP energy-weighted indices include investment banks Wachovia and Citibank and fund manager Alerian as yield-hungry investors ride the commodity boom and angle for MLPs' tax-free incentives.
Created: October 16, 2007
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