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MarkWest Energy Partners, L.P. Message Board

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  • azrtrd azrtrd Oct 29, 2009 4:06 PM Flag

    Pipe Line Dist.

    nsupper-

    Don't know where Abter is now, but you mention investing in pipeline companies. MWE is not a pipeline play. MWE is a midstream processor and is subject to commodity price fluctuations. Others in the MLP universe are more pipelines such as BWP - an almost pure pipe and stroage company, and KMP, EPD, ETP all have much more of their asset base in pipes.

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    • azrtrd Re MWE I sure thought it was a p line > Been watching it for week and thought if got below 24$ mite buy small amount. How ever I do like the pipe lines> What are your thoughts on MWE I do like the MWE dist> growth > Also would know what the K1 return of capt % is

      • 1 Reply to nsupper1
      • sorry, somehow I missed this one.
        As Azrtrd said, MarkWest doesn't have a lot of pipes, and those that it has are small diameter ones. MWE is a G&P = Gatherer and Processor. MWE owns small diameter pipes from gas wells (which they do not own) to MWE processing stations. The stations "clean" the gas, separating CO2 (a waste product for MWE), natural gas liquids, and natural gas which they compress and sell into regional pipes (not many owned by MWE). While they don't own the gas or NGLs, they do have commodity risk (which they hedge against). If gas prices are low, wells produce less gas, and MWE has less gas to G&P...hurting revenues.

        MWE is referred to as being an MLP 'pure gas play'. The bright possibility is their first mover position in the Marcellus shale field in Appalachia. If that all works out as some rosy forecasts indicate (higher gas prices +long lasting & abundant gas resources from the Marcellus), MWE will be a very good long run investment. There will be a lot of waiting involved...at least we get the hefty yield flow to tide us over.

        Getting specific information on any MLP's actual tax shelter (the % of the yearly distribution you get to postpone paying income tax on) is not easy. For one thing, it varies by each investor. And it can vary a lot! The "conventional wisdom" about a typical investor is often quite wrong. For what its worth, Wells Fargo estimate for MWE is 40% - 90%.

        There is a data collection project going on for a few years over at InvestorVillage (on the MLPs board...remember the s in the board name). Factoids (a legendary MLP poster at Yahoo and IV) has collected data from MLP investors from their K1s. He collects it in terms of $/unit owned, so it doesn't matter how much you own.

        Factoids specific data project is collecting UBTI data (K1 box 20v). While UBTI is only directly relevant to MLPs held inside an IRA, the UBTI is closely related to the tax shelter % in a regular account. For many MLPs there is a 1-to-1 relationship; UBTI % = taxable %. For other MLPs there is a less close relationship (for example, MLPs that also generate depletion allowance tax credits or deductions have more tax shelters than just return-of-capital reducing income, which is largely what shows up in UBTI).

        Factoids end-of-tax-2008 post on UBTI data is at
        http://www.investorvillage.com/smbd.asp?mb=5028&mn=1376&pt=msg&mid=4592213
        How does all this help answer your MWE question? Because you will see that for some MLPs deliver the same tax postponement feature to everyone. For example, KMP had delivered 100% tax postponement to virtually everyone for a long time (>7 years at least). Factoid's data also found APL, EPD, HLND, MMP and a couple of others gave at or near 100% postponement to everyone. A negative UBTI # is a 100% tax postponement.

        MWE had the widest spread of all the MLPs in Factoid's project. I'm sensitive on this, because I had the worst single postponement result in one account of anyone in Factoids data. I owned MWE in 3 accounts last year, bought in '03, '04 and '06. In 2008 MWE's total distribution was $2.44/unit. I had taxable income of $2.04/unit, $0.44/unit and $0/unit in the 3 accounts. So I got anywhere from 100% to 17% postponement. My 17% MWE postponement is from a purchase I made in 2003, and have NOT been reinvesting the dist. in that account. So much of my capital has already been returned, so I don't have much left to be postponed more.

        Tax shelter % also varies from year-to-year for an individual investor. In tax year '07 that unlucky MWE account of mine was only 2% sheltered. Fortunately for me that MWE holding is both small and in an RIA. Even with MWE's high UBTI amount I'm not over $1k/year in UBTI (the tripwire amount, where you start paying tax from inside your IRA...not pretty).