Two companies with Marcellus Shale assets, Consol Energy and Noble Energy, announced plans earlier this month to form a master limited partnership to handle pipeline and processing demands in the shale play. They are among the most recent in a long line of companies to use a master limited partnership (MLP), a tax vehicle developed in the 1980s that gives companies incentives to invest in energy infrastructure.And they likely won’t be the last.
Master limited partnerships are publicly traded entities that pass on earnings directly to their shareholders who then pay taxes on that income. The first one was formed by Apache Petroleum Co in 1981. Later, the Tax Reform Act of 1986 under the Reagan administration accelerated their use as a way to invest in domestic energy infrastructure.
The MLP structure is different than that of a traditional energy company. And pipeline companies, in particular, are well suited for the model, said Andrew Brooks, vice president for Moody’s Investors Service.