For Investors Only: Pipelines

Link to Bloomberg.

Until 10 years ago, tax-advantaged master limited partnerships, or MLPs, were leftovers from the oil boom of the 1980s, when they were used to attract individual investors to the exploration business. They emerged in the 2000s as the vehicle of choice for pipeline companies that hurried to keep up with the pace of drilling in new fields like the Marcellus Shale in Pennsylvania and the Bakken Shale in North Dakota.

It would take $251 billion in investment over 25 years to build pipes, processing plants and other infrastructure needed for all the new exploration, the Interstate Natural Gas Alliance of America trade group estimated in a 2011 report. The spending is already ahead of those estimates, and most of it is being done by MLPs, according Eduardo Seda, an analyst at Ladenburg Thalmann & Co. in New York. MLPs don’t pay U.S. income taxes and distribute most of their free cash as taxable income to investors through partnership units, which trade like stock. 

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read at the Million Dollar Way.