will LINE's precedent of gobbling up entire c-corp raise the possibility of change in MLP tax status?
The reason for Canada eliminating the Canroys was because too many corps were planning to switch to trust status.
In Canada all manner of companies out of the energy sector were applying for trust status and getting it. I think that if publicly traded companies in the U.S. are exclusively in the energy sector and contribute to energy independence, they'll be okay regardless of which party has the votes.
The argument can be made that Hydrocarbon MLP's are in the best interests of our national security. In my opinion, our foreign policy is changing concerning OPEC (the Muslim world). There will be no more "boots on the ground" (with the exception of special ops). U.S. Energy independence will have a significant change on geopolitics. To screw with MLP's would not be in our best interests.
Exactly. The MLPs were set up to promote investment in energy infrastructure. The government got that one right!
Along the way, the sector has had numerous PLR's that have expanded the universe.
Agreed, US Energy Independence is of vital importance. It is key to our nations manufacturing revival. Our country deviated from being a manufacturing economy and consequently our job skills and work force have suffered. You CANNOT add significant value without manufacturing when you turn raw materials into a finished goods. Our country is slowly waking up to this.
Separating ourselves from the Muslims is very important. Time to let those db's take care of themselves.
I assume the whole dirty laundry thing re: hedges airing last week very publicly increased the exposure of MLPs to legislators..assuming any of them are smart enough to read Barron's - and could put them on the radar of some liberals. That, plus the new report from the Joint Committee on Taxation didn't help either.
The NAPTP I think highlighted that there was at least one legislator (I believe from Minnesota) that was staunchly anti-MLP. I think his issues stemmed more from the fact that many successful law firms and hedge funds are set up as partnerships. I believe his intent was to close some of thos loop-holes, which may or may not hurt publicly traded MLPs. The bill never made it anywhere, so it is a moot point, but these are issues that the NAPTP does a very good job of following.
The discussion of actually broadening the sector by including alternative energy investments is a disaster waiting to happen.
I do not want wind turbine and solar charlatans invading the MLP sector. It is bad enough that the refineries are now floating MLPs. We do not need a tsunamai of phoney baloney alternative energy companies polluting the sector.
The NAPTP (National Association of Publicly Traded Partnerships) keeps a very close pulse on this issue. I believe Merrill Lynch released a report a few months ago that showed exactly how much federal income tax was lost. It had been revised upwards from the numbers just a few years ago, in part due to the successful growth of existing MLPs as well as the number of new MLPs coming to the market on an almost monthly basis.
A couple important things to remember. The total loss in income tax is something on the order of like $1 billion annually. A drop in the bucket compared to our defecit. I do not believe that any consideration has been paid to the tremendous benefits that the structures have provided (i.e. promote investment in energy infrastructure).
Back to your point, Linn is now in the top 10 in terms of independent E&Ps based on enterprise value. They had been on the cusp before, but the Berry deal puts them firmly in the top 10.
It is very conceivable and likely they move much higher over the next couple of years. While it may concern some as it draws more attention, one must remember that the Kinder Morgan family of companies is something like the 3rd largest US independent energy company(i.e. non integrated major like Exxon, Chevron, Shell etc).
So, the midstream side has it's tagets as well, and to add to it, Enterprise, which is now streamlined into 1 corporate entity (no EPE, DEP, TPP anymore) is right up there in size with Kinder Morgan. Energy Transfer (ETE), with their control of RGP, SXL and ETP are also getting quite large on a consolidated basis.
At some point I do believe the party will come to an end, or at least legislation will be passed that limits the expansion.
There have been a significant number of PLR's from the IRS regarding what does and does not qualify. This only serves to enhance the scrutiny of the sector.
All that being said, I still think it will be very difficult for them to pass something, and remember, taxes are paid based on GAAP earnings, not cash flow. It is something like $1 billion annually, spread across 100+ MLPs. It would hurt, but many of the MLPs that run with strong coverage ratios could weather the storm. My SXL, with 2.0x coverage would keep on rocking. Some of those that run with tight coverage of 1.10x might either have to cut or simply delay distribution growth.
It is a concern, but the NAPTP has a good lobby and routinely post updates on their website. I encourage you to visit it if you don't already.