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Investing Topics: Master Limited Partnerships

Viper Energy Partners LP: Mineral Rights Gain Momentum

Viper Energy Partners owns mineral rights that entitle the MLP to an average 21.4 percent royalty interest in 14,804 gross acres in the northwest portion of Midland County, an area that’s prospective for multiple oil-bearing payzones that occur at various depths. 

Four Takeaways from the Year’s Biggest Acquisition in the Energy Patch

On June 16, 2014, Williams Companies announced an agreement to acquire Global Infrastructure Partners’ 50 percent general-partner interest and 27 percent equity interest in Access Midstream Partners LP for $5.995 billion. We examine four key takeaways from this deal for MLP investors. 

V-MLPs: A Refined View

Three of the 10 publicly traded partnerships that pay variable distributions own and operate small refineries and related assets. Although these stocks were hot commodities when they first went public, investors’ interest cooled after crack spreads narrowed and distributions shrank rapidly. But there’s opportunity in this space for investors with a nose for value and special situations.

Distributions May Vary: The Smart Investor’s Guide to V-MLPs

Many energy-related masted limited partnerships (MLP) own assets that generate reliable cash flow and exhibit limited sensitivity to commodity prices, credit conditions and the state of the economy.

Names that own midstream assets–pipelines and other infrastructure that transport hydrocarbons from the wellhead and prepare them for sale–often generate their cash flow from multiyear agreements that guarantee a minimum payment. Of course, investors must keep tabs on when these contracts end and whether expiring contracts can be renewed at similar, or more favorable, terms.

Whereas publicly traded partnerships usually privilege reliable cash flow and distribution growth, variable-rate MLPs (V-MLP) offer a different value proposition and make no effort to hedge their exposure to commodity prices or economic conditions.

These publicly traded partnerships deliver distribution coverage of 100 percent each quarter, but their payouts will vary depending on the performance of their underlying business.

Most V-MLPs own and operate downstream assets such as refineries or chemical plants–industries where earnings fluctuate with commodity prices and exhibit greater volatility than in the midstream segment.

When V-MLPs’ underlying businesses are in the sweet spot, these names can deliver big-time price appreciation and stratospheric yields of 20 percent to 30 percent; however, if business conditions deteriorate, it’s not unheard of for a V-MLP to omit its quarterly payout entirely.

Here’s our guide to the high risks and rewards in this niche segment of the MLP market.

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      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

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      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

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      Managing Editor: Capitalist Times and Energy & Income Advisor