The upstream MLPs continue to close purchases, albeit smaller than the headier, 10-figure deals of early 2007, despite tougher access to capital and a softening of their equity currency.

Between early February 2006 and August 3, 2007, members of this small, but formidable, new group of property buyers made some $9.7 billion in purchases, averaging some $540 million per month, according to a Tristone Capital analysis of MLP deal-making.

Since then, however, only one super-large acquisition has been able to push past the costlier capital-access barrier: BreitBurn Energy Partners’ $1.45-billion purchase of 539 billion cubic feet equivalent of proved Michigan and New Albany shale reserves from Quicksilver Resources.

In this case, faced with a smaller PIPE (private investment in public equity) fund-raising market, BreitBurn opted to make the offer with cash and units, roughly 50/50 of each. (Quicksilver’s interest in a stake in BreitBurn is described in “Tack Change,” an interview with Quicksilver president and chief executive Glenn Darden, in this issue.)

An all-cash offer from an MLP had been commonplace prior to the BreitBurn deal, but the Quicksilver opportunity surfaced after PIPE capital flow retreated in the face of urgent credit-market issues.

Excluding the BreitBurn-Quicksilver deal, since early August through early December, the upstream MLPs made some $706 million in purchases, or a monthly average of $176 million in the four-month period. These were by Legacy Reserves ($95.4 million), Abraxas Energy ($140 million), Atlas Energy ($10.7 million), Eagle Rock ($400 million; part cash, part stock) and EV Energy ($59.5 million).

Yves Siegel and Michael Blum, analysts with Wachovia Capital Markets, report that, while PIPE deals continue to flow, discounts have widened and more institutional investors are needed to “fill” the PIPE.

To broaden their capital access, some MLPs have filed registration statements with the SEC for public equity issuances in the future. While time-consuming, this fund-raising route represents a new tap, while PIPE money has become less reliable and more costly.

While as many as three dozen new upstream MLPs were being tossed about in board rooms this summer, few are being pushed through. Robert Lane, an analyst with SMH Capital, says new upstream MLPs may find capital markets a challenge in 2008 if trying to IPO.

Already, Pioneer Natural Resources has postponed the IPO of some of its Permian Basin assets. Last spring, the company announced the IPO for the fourth quarter. It now expects to revisit the roll-out in this quarter, if market conditions improve.

Devon Energy Corp. planned to IPO some midstream assets in 2007, but that is also on hold.

“Frankly, we do not believe there will be sufficient new equity capital from investors entering the E&P MLP subsector during the next six months to absorb the planned offerings,” Lane tells senior financial editor Brian A. Toal in this issue. (For more on this, see “NewsWell.”)

Participants in equity in already-public MLPs have mostly done well, depending on when they got in in 2007 and if they got out. Investors who got in early rode a wave of improving market value for their units: more than 80% by early August for unit-holders in two (EV Energy Partners and Constellation Energy Partners), and at least 20% for all others.

Those who have got in since early August have seen losses of between 8% and 35%. Overall, the upstream MLPs were looking to finish the year up 40% for some and down as much as 25% for others.

While the tighter PIPE market in second-half 2007 represented an Arctic blast on the upstream MLPs’ red-hot momentum, these asset buyers aren’t extinguished. Property owners should keep up the work on those made-for-sale-to-an-MLP packages.

Bill Britain, president and chief executive of asset auctioneer EnergyNet Inc., reports in this month’s “M&A Trends” that “smaller sellers have waited to sell, in some cases, to determine what the lower value threshold is for MLPs to be acquisitive.”

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