Master Limited Partnerships (MLPs) are tax-incentivized structures ideally suited for the financing of capital assets, especially when those capital assets have long term revenue streams attached to them. Energy infrastructure, such as pipelines, has been the original template for such investments. Companies active in the maritime industry, such as shipowners of LNG tankerships, drilliships, offshore assets, and, even mainstream tankers, have also tested the waters of this yield-oriented market.
The collapse of the price of oil in the last year has seen many of the MLP companies halve their share price. Some investors may wonder whether there is a false association between energy pricing and service pricing in this case, as a pipeline company generates income based on volume passing through its infrastructure and not on value of the commodity passing through its infrastructure. Of course, there is the risk of lower volumes in a weaker market, or renewing charter contracts for tankers at lower rates in a weaker market, but is the risk so high as to justify such a dramatic drop in the Alerian MLP Index?
As a side-thought, since the article was originally published, it has been revealed that the master of value investing, Warren Buffett and Berkshire Hathaway, has taken a position in Kinder Morgan (ticker: KMI), a pipeline company that in the last couple of years has been expanding aggressively in the Jones Act tanker market.
In a recently penned article for the Caribbean Maritime magazine, Karatzas Marine Advisors explores the MLP market, especially from the point of view of the Caribbean Basin where energy infrastructure could benefit from the MLP structure.
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