Oppenheimer: Some high-yield MLPs may be forced to cut distributions

MLPs typically return ~90% of their income to unitholders, and a new report from Oppenheimer suggests some MLPs may have a tough time doing that; some companies are way too aggressive and may be forced to cut their distributions if suitable acquisitions and capital are not available, the firm says.

Oppenheimer's top energy MLPs to buy: BreitBurn Energy Partners (BBEP), LRR Energy (LRE), Memorial Production Partners (MEMP), New Source Energy Partners (NSLP) and the more aggressive Mid-Con Energy Partners (MCEP).

MLP stress is far less prevalent on the leading large cap names, such as Enterprise Products Partners (EPD), Kinder Morgan Partners (KMP), Plains All American (PAA) and Energy Transfer Partners (ETP); all have consistently raised their distributions over the years and appear likely to continue to do so.


This was corrected on 10/10/2013 at 09:53 AM.
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Comments (16)
  • rlp2451
    , contributor
    Comments (9789) | Send Message
    MLPS are not "required to pay out 90% of their taxable income." They are not REITs or BDCs. The author makes a common mistake (many others have done the same) but to state it in a high-profile article like this makes one question the validity of the rest of the piece.


    One of the most crucial criteria that must be met in order for a partnership to be legally classified as an MLP is that the partnership must derive most (~90%) of its cash flows from real estate, natural resources and commodities.
    9 Oct 2013, 11:09 AM Reply Like
  • thexperience
    , contributor
    Comments (23) | Send Message
    Correct. This leads to more misunderstanding about an already (relatively) complicated structure. "Cash Available for Distribution" is defined in the partnership agreement, and the GP usually has discretion to adjust this amount if they see the need to retain capital for acquisitions, etc. Why else would see see some MLPs with distribution coverage over 1.2x for several running quarters?


    The GP could technically retain almost all cash if the equity market wouldn't quickly punish them into oblivion for doing so.
    9 Oct 2013, 11:21 AM Reply Like
  • Arthur Paullin
    , contributor
    Comments (502) | Send Message
    Everyone who writes about MLPs, and the Kinder Morgan complex in particular, should be required to first read the following articles (and maybe pass a quiz on them :) )


    Basic structures and terminology:


    Taxation issues:
    9 Oct 2013, 12:07 PM Reply Like
  • Be Here Now
    , contributor
    Comments (6311) | Send Message
    I left a critical comment on the referenced link.
    9 Oct 2013, 12:20 PM Reply Like
  • Be Here Now
    , contributor
    Comments (6311) | Send Message
    I have to wonder if Oppenheimer made the same mistake. If they did, their entire research article is invalidated. Does anyone have access to the article?
    9 Oct 2013, 01:35 PM Reply Like
  • WhatdoIknow1
    , contributor
    Comments (652) | Send Message
    The article makes no mention of which high yield MLP's are in danger. Just, these are our picks and these are the least stressed.
    I can only assume that the MLP tickers that were thrown around in the blurb were meant to generate interest in Oppenheimer's picks. I also don't think a cut is forth coming in KMP. It's not that high of a yield at 6.6%. At least not based on the authors premise.


    Long KMP
    9 Oct 2013, 11:32 AM Reply Like
  • aretailguy
    , contributor
    Comments (2020) | Send Message
    Here are the negative remarks from the article:


    "Oppenheimer pointed out in its research piece that Linn Energy LLC (NASDAQ: LINE) should be avoided, and the firm has an Underperform rating on the stock. It was also less constructive on EV Energy Partners L.P. (NASDAQ: http://bit.ly/10DtvdL) and Vanguard Natural Resources LLC (NASDAQ: http://bit.ly/TToavG). Both of the companies were considered too aggressive and they may not have the ability to safely continue their distributions at current levels."
    9 Oct 2013, 12:27 PM Reply Like
  • WhatdoIknow1
    , contributor
    Comments (652) | Send Message
    Thank you Guy and thanks for the articles Arthur. I should have followed the link in the blurb. I guess I didn't notice it on my phone.
    9 Oct 2013, 12:56 PM Reply Like
  • Pablomike
    , contributor
    Comments (4866) | Send Message
    ETP hasn't raised it's distribution since the 1Q of 2008. Do we blame the "author" of this junk or is it all just taken from Oppenheimer??
    9 Oct 2013, 12:01 PM Reply Like
  • Be Here Now
    , contributor
    Comments (6311) | Send Message
    SA Editors: you need to correct the first bullet item. There is no statutory requirement for MLPs to pay out anything.
    9 Oct 2013, 12:22 PM Reply Like
  • Be Here Now
    , contributor
    Comments (6311) | Send Message
    SA Editor Gaurav Batavia notified me that the mistake has been corrected.
    10 Oct 2013, 11:48 AM Reply Like
  • rlp2451
    , contributor
    Comments (9789) | Send Message
    How does one see it?


    I note that the 24/7 article still says the same thing.
    10 Oct 2013, 11:53 AM Reply Like
  • R.Fitz
    , contributor
    Comments (1014) | Send Message
    Wow! You guys are quick to see all of this -- I didn't.
    9 Oct 2013, 01:10 PM Reply Like
  • deercreekvols
    , contributor
    Comments (9727) | Send Message
    If there is no requirement for MLPs to pay out, why is the first statement still in the Market Current?


    Anyone home with control to ammend Market Current?
    9 Oct 2013, 02:24 PM Reply Like
  • Sumflow
    , contributor
    Comments (3595) | Send Message
    Fiction is fiction.
    9 Oct 2013, 03:53 PM Reply Like
  • toomuchgas
    , contributor
    Comments (1033) | Send Message
    9 Oct 2013, 07:27 PM Reply Like
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