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Master Limited Partnerships

MLP Primer

By Elliott H. Gue, on Jun. 3, 2014

Nevertheless, the future appears bright for many MLPs which own infrastructure that transports or processes oil, NGLs and natural gas. The rapid development of the nation’s prolific shale fields has enabled the US to grow domestic oil output for the first time in decades and overtake Russia as the leading producer of natural gas.

This upsurge in oil and gas output has occurred in many regions that lack midstream capacity, while frenzied drilling in the Permian Basin and other areas with a long history of hydrocarbon production has overwhelmed existing infrastructure. Needless to say, the pipeline of midstream projects remains robust and should continue to fuel distribution growth for the best-positioned operators.

In March 2014, the Interstate Natural Gas Association of America (INGAA) published its report on North American Midstream Infrastructure through 2035. The study estimates that US energy companies will need to spend $30 billion per year through 2035 on midstream infrastructure, including $11.4 billion on natural-gas pipelines, $2.6 billion on infrastructure to process and handle natural gas liquids such as ethane, propane and butane, and a whopping $12.4 billion on crude-oil pipelines.

In 2011, the INGAA estimated that US energy firms would need to spend $261 billion between 2011 and 2035 on midstream infrastructure; the organization’s most recent report has raised this estimate to $641 billion.

With an ample pipeline of growth opportunities via expansion projects and acquisitions, we expect Alerian MLP Index to continue its impressive track record of distribution growth.

Our MLP Investment Strategy

Given all the capital flowing into the MLP space and the frothy valuations at which some of our favorite names trade, we’ve focused primarily on undervalued names that offer higher yields and underappreciated growth prospects.

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