Master limited partnership (MLP) spin-offs in the E&P space should ramp up significantly during the next few years as producers attempt to capitalize on undervalued, long-reserve-life, low-growth assets. This is the view of John Freeman, energy analyst for Raymond James & Associates in Houston, who points out several benefits to E&P companies arising from such a move. First, since MLPs enjoy favorable tax treatment, most of them distribute a generous portion of their cash streams to unit-holders, thus they achieve higher yield-oriented valuations in the marketplace. "Currently, MLPs trade at 10 to 11 times EBITDA (earnings before interest, taxes, depreciation and amortization) versus five to six times for the [publicly traded stocks] of the E&P group," says Freeman. He notes that upstream MLPs have appreciated about 50% since their IPOs-and this doesn't include distribution yield. For more on this, see the May issue of Oil and Gas Investor. For a subscription, call 713-260-6441.
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