Despite market jitters, eliminating MLP tax benefits unlikely, analysts say
Houston Business Journal by Deon Daugherty, Reporter
Date: Tuesday, November 13, 2012, 10:06am CST
Now that presidential election is settled, Houston's energy industry can now turn its attention to what Congress and the White House might do once Washington gets back to business. And it’s making some market watchers a bit jittery, analysts say.
“Since the presidential election results came out on Nov. 6, less than a week ago, the energy complex has not exactly responded positively,” wrote Raymond James analysts in their research note on Tuesday, noting that the Standard & Poor’s 500 is down about 3 percent, the oilfield service index is down 4 percent and the exploration and production index is down 6 percent. Even the Alerian MLP Index, a Dallas-based company that measures the performance of the nation’s 50 largest MLPs, has dropped more than 5 percent.
Raymond James analysts in Houston say those drops probably are driven by market fears about potential tax reform legislation that might impact master limited partnerships, as well as other corporate entities.
Houston-based Targa Resources Corp. (NYSE: TRGP) units were trading down less than 1 percent at $37.76 on Tuesday morning; Enterprise Products Partners LP (NYSE: EPD), also based in Houston, was trading up almost 1 percent.
Analysts at Houston’s Tudor Pickering Holt & Co. said in their energy note that the unit sell-off among MLPs is probably tax-related.
However, RayJa said that eliminating the tax benefits for MLPs is unlikely for a number of reasons. In particular, analysts said reforming the MLP tax structure would likely generate less tax revenue than lawmakers might realize, and investment in infrastructure — the bread and butter of the MLP space — is critical to domestic energy independence.