MLPs Searching For A New Look

This year’s MLPA conference at the Hyatt Regency Orlando reflected the sector’s current transition. It was rebranded from years past to be the MLP & Energy Infrastructure Conference (MEIC), now open to energy infrastructure corporations as well as MLPs. Revealingly, this inevitable recognition of the continuing shift of MLPs to a corporate structure was not embraced by former MLPs. Kinder Morgan (KMI), Oneok Inc (OKE) and Williams Companies (WMB) all declined to participate.

Since almost no corporations showed up, it was an MLP conference after all, albeit with fewer companies and what seemed like a smaller crowd. The conference took place in a more modest set of ballrooms at the Hyatt while another, unrelated event occupied the larger space. The managers of MLP-dedicated, tax-burdened funds (see AMLP’s Tax Bondage) are alone in their unequivocal support of MLPs as the best way to invest in energy infrastructure. The diminished conference must have been a sobering assault on their conviction.

Clearly, energy infrastructure corporations see no value in being associated with MLPs. Moreover, in the smaller group meetings of a half dozen or so investors with management teams, most MLPs were left defending their decision to persist with the MLP structure. “When will you convert to a corporation?”, known as the Simplification Question, came up in every single meeting we attended, even when the company was doing very well (such as Crestwood, CEQP). One management team had an internal over/under bet on how many times they’d be asked all day – trading was at 75.

The industry’s shift to a growth model has already alienated their traditional, income seeking investor base by resulting in widespread distribution cuts to pay for new projects (see Will MLP Distribution Cuts Pay Off?). This is a self-inflicted wound, but the March FERC (Federal Energy Regulatory Commission) Policy Statement may turn out to be nearly as ruinous (see FERC Ruling Pushes Pipelines Out of MLPs). A panel of lawyers discussed the thinking behind the change, which was cited by both WMB and Enbridge (ENB) last week as they rolled up their MLPs into the corporate parent (see Transco Dumps its MLP). Attendees overflowed from the cozy ballroom.

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Disclosure: We are long CEQP, ENB, ENLC, KMI, LNG, PAGP and WMB. We are short AMLP.

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