Sunday, March 22, 2009

Making money with LPs (Part 1): A different kind of partnership

The following six articles have been developed to introduce expanded coverage in Energy Pipeline News of the high-yield investments called master limited partnerships (MLPs) or simply limited partnerships (LPs). For further information, please visit

LPs – limited partnerships - specialize in mineral and natural resource development that can be traded on securities exchanges. Investors buy and sell LP "units" just like shares of stock, but instead of receiving dividends, "unit holders" get cash distributions typical of a partnership structure.
Established by Congress in the 1980s, LPs were originally developed to spur investment in energy and natural resource projects. According to the Revenue Act of 1987, only companies engaged in "the exploration, production, mining, processing, refining, marketing or transportation" of mineral and natural resources may use this structure.
Today, there are about 100 LPs, more than 75 percent of which are energy infrastructure companies. These partnerships run a variety of businesses - including pipelines, refineries, processing plants and more - for a range of natural resources such as oil, coal, propane, natural gas, timber. They even cover alternative fuels like ethanol and biodiesel.
Because most LPs own physical assets that operate independently of the commodities transported, processed or refined, the income of these companies depends less on energy prices and more on energy demand. And since demand is much less volatile than pricing, LP income remains relatively stable even when energy prices go haywire. So unit holders usually see a steady, predictable increase in their cash distributions.

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