The MLP model is being considered for oil-service and downstream ventures too, according to Sean M. Maher, a vice president at Morgan Stanley.

"Beginning in 2006, we've seen E&P MLPs proliferate, a divergence to the upstream," he told Gas Processors Association members in Houston. "We're also seeing refining MLPs, a movement to the downstream, and there's a push to move them into the oil-service sector as well.

"The increase in the types of assets placed in the MLP structure is what has caused this group to go from approximately $10 billion in market cap, back in 2000, to a $150-billion market cap today."

The MLP structure is also attractive to both investors and companies due to the preferential tax treatment they enjoy. There is no corporate taxation and they have pass-through earnings and depreciation to the limited-partner unit-holders.

Midstream MLPs have outperformed the S&P during the past six of seven years. They generated about a 6% current yield, returning an average 25% during the past seven years, while the S&P returned about 10% during the same period.

"The limited partners traditionally receive a stable, predictable distribution and can expect that the distributions will grow, at least modestly, over time," says Maher.

Until recently, MLPs have been formed with midstream assets, including oil and gas gathering, processing, transportation and storage.

In 2000, there were approximately 13 publicly traded energy MLPs. Today there are nearly 70. In the past two years there have been nearly 28 MLP IPOs and another 13 MLP IPOs are in registration. Another five to 10 are being considered, according to Maher.

MLPs have a valuation uplift that C-Corps don't enjoy due to their tax benefits. A pipeline company that Wall Street values at 10 times its EBITDA (earnings before interest, taxes, depreciation and amortization) will trade at 13 times EBITDA if flipped into an MLP, he said, due to the tax-rate difference.

"This uplift in valuation of assets is why the companies find it so attractive. That, and the fact that the long-term growth of the MLP is primarily being financed by the limited partners."

According to Maher, there are about 26 different energy-associated classes of assets that can be placed into an MLP structure. Some 17 of those classes now have MLPs and there are about four more that may be turned into an MLP in the near future. Nonetheless, most of the MLPs under current consideration are E&P MLPs.

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