MLP Market Update
Commentary on Master Limited Partnerships

Category Archives: General

Feb 7th, 2013

General, Stock Analysis

MLP Research: Accept This Justice as a Gift…

Perhaps the best exchange in the movie Godfather for explaining how the mafia worked was when Bonasera is asking Don Corleone (the elder) a favor:

Bonasera: How much shall I pay you [to kill some guy]

Don Corleone: Bonasera, Bonasera, what have I ever done to make you treat me so disrespectfully?  If you’d come in friendship, this scum who ruined your daughter would be suffering this very day.  And if by some change an honest man like yourself made enemies, they would become my enemies.  And then, they would fear you.

Bonasera: Be my friend…Godfather.

[Corleone shrugs, but upon hearing the title lifts his hand, and a humbled Bonasera kisses the ring on it]

Don Corleone: Good [places hand on his shoulder]…someday… and that day may never come… I’ll call upon you to do a service for me.  But until that day, accept this justice as a gift on my daughter’s wedding day.

Bonasera: Grazie, Godfather.


This exchange helps illustrate the approach Guzman & Company is taking with MLP equity research, which launched today (see press release here).  Nothing is free, but Guzman & Company is offering its MLP research (starting with the five reports I published today) free to interested parties, as long as they share contact information with the firm and are willing to be contacted by Guzman & Company sales and trading staff in relation to underwriting transactions in which Guzman & Company may be involved at some future date.

There are two distinct differences between this approach and the Godfather’s: (1) we will not feel disrespected if someone wants to pay us for research or trade with us as a thank you, and (2) we will not accept any ring kissing.

So,  someday…and that day may never come…we may call on you, but until that day, please accept this research as a gift…

To sign up to receive equity research reports going forward, follow this link (  We plan to publish a sector report on the upstream MLP sector that will help explain the thesis for that group within the MLP sector, why I iniated coverage with 5 outperform ratings and perhaps a top pick of those 5.  Additionally, we plan to launch coverage of more MLPs this quarter.


Nov 2nd, 2012


On the Side: Pro Sports Ownership and MLPs

Some readers may not be aware, but I am co-founder and part owner of a professional sports franchise.  After I quit Lehman in 2007, I invested in and helped (with my partner Andrew Nestor) form the investor group of the Tampa Bay Rowdies, a pro soccer franchise.

The two questions I get about it once people find out are:

  • Is that part of the MLS?  (usually followed by some vague recollection of Houston’s MLS team building a stadium)
    • No, we are part of the newly re-formed North American Soccer League, which now has 10 franchises across North America, including the New York Cosmos, which will restart their franchise next season
    • NASL is the only USSF sanctioned Second Division soccer league in the U.S., which puts us right below MLS in the U.S. Soccer pyramid
    • But, now that you mention MLS, the last 3 franchises to join MLS (Portland, Montreal and Vancouver) were all previously in our league
  • Did you play soccer growing up or are you a big soccer fan?
    • Neither, beyond some early Post Oak YMCA youth soccer
    • I saw a growth opportunity in professional soccer in North America, an opportunity to create a niche similar to minor league baseball whereby a family of four can attend a game at a reasonable price and have a great in-game experience.  I can safely say that back in early 2008, I was overly optimistic about how quickly that growth would occur, but we have built a loyal fan base and there is some light at the end of the cash burning tunnel

So, why now after being silent on the subject for more than 200 blog posts covering almost 3 years am I finally adressing the Rowdies?  Because last Saturday, in a thrilling comeback final game that ended in dramatic penalty kicks, the Tampa Bay Rowdies won the 2012 NASL Championship!  I serve as a director for the Rowdies, don’t attend many games, and haven’t even met our head coach, so I am as absentee an owner as you will find.  But that doesn’t mean I won’t get a championship ring!

Watch highlights here:

The original Tampa Bay Rowdies won the NASL championship back in 1975, and were very popular in town, especially in games it played against their rivals the New York Cosmos.  In fact, in the early 1980s, the Rowdies were averaging more than 25,000 fans per game.  This season the Rowdies, playing at Al Lang Stadium in St. Petersburg, averaged 3,372 fans per game.  But these days there is much more local sports competition from the Rays (MLB), Buccaneers (NFL), Lightning (NHL).

Bringing this post back to the MLP world, there are several MLP affiliated major sports franchise owners.  The most recent is the new owner of the Cleveland Browns, who is the president and CEO of Pilot Flying J.  Pilot Flying J recently acquired Maxum Petroleum, which has filed for an MLP IPO (although hasn’t filed an amended S-1 since early July).  Others include (I’m surely missing some):

  • Tisch Family – controls Loews Corp, the general partner of Boardwalk Pipeline Partners (BWP), also 50% owners of New York Giants
  • Paul Allen – owner of Seattle Seahawks and Portland Trailblazers (part owner of Seattle Sounders of MLS), previously owned majority of the GP of Plains All American (PAA) through Vulcan Capital
  • Jim Crane – Director of Western Gas Partners (WES), also owner of the Houston Astros
  • Aubrey McClendon – 20% owner of Oklahoma City Thunder, is CEO of Chesapeake, which until recently controlled its own MLP
  • Ray Davis – part owner of the Texas Rangers, was co-CEO of Energy Transfer (with Kelcy Warren) until 2007
  • Phillip Anschutz – Owner of Los Angeles Galaxy, owns the Staples Center and the Home Depot Center, part owner of LA Lakers.  He used to own the GP of Pacific Energy Partners, before it was sold to Lehman Brothers Private equity in 2005

Owning the GP of an MLP and owning a pro sports franchise would be a pretty awesome combo.  I guess now that Manchester United has gone public you can buy some of that and of a publicly-traded GP and have the cash flows of each, but the real reason you own a sports team is for the ancillary benefits (most of which I don’t get as an absentee owner, sadly) of hosting your friends and business associates at a game, being a local celebrity, competing against other team owners for championships, etc.

Business Model Breakdown: Minor League Soccer and MLPs

I have firsthand what you can probably guess: the business models of a Second Division soccer franchise (with no major TV deal or league-wide corporate sponsor) and that of an MLP are very different.  I’ve listed a few of those reasons below, just for fun.  The list helps highlight some of the attractive features of MLPs, while hopefully deterring young sports entrepreneurs from jumping into a sports team too fast.  Owning a small sports franchise can be likened to owning an airline in the way Richard Branson once described how to become a millionaire: start with a billion dollars and launch an airline.

Cash Flow:

  • MLP: contracted, tied to inelastic demand or drilling activity, can hedge some commodity price exposure, some rates tied to inflation
    • Potential disruptions due to weather (hurricanes, droughts, extreme cold), plant or pipeline accidents or natural disaster, usually covered by insurance
  • Soccer Team: variable, fickle, heavily influenced by weather (rain, lightning, extreme heat, or even good weather can keep fans away in Tampa)


  • MLP: usually fixed, but not undertaken until revenue is certain
  • Rowdies: usually fixed (player salaries, stadium rent, office rent, etc), we are going to play the games
    • Exception: workers comp claims, player injury costs
    • Huge operating leverage, IF you can get past your breakeven number of paid fans, marginal cost per fan is negligible (but that’s a big if)

Equity Issuance:

  • MLP: frequently, whenever MLP wants to build or buy something, but always accretive, ready capital markets access if operating results are solid
  • Rowdies: frequently, whenever cash runs low


  • MLPs: equity issuance usually executed for an accretive purpose.  In other words, MLPs issue equity to pay for an acquisition that is accretive after taking into account the newly issued equity
  • Rowdies: equity issuance to cover costs, and like any non-profitable startup, those that choose not to participate in capital calls will get diluted down over time
    • Issuing equity to pay for accounts payable is not accretive…


  • MLP: in a given geographic area, certain pipelines are almost monopolies, where there is competition, long term contracts can mitigate to some extent
  • Rowdies: everywhere, other local teams (TB Rays, TB Lightning, TB Buccaneers), anything else a family might want to do on a Saturday night (movies, TV, board games, summer vacation, whatever)

Cyclicalilty of Demand:

  • MLP: generally immune to economic oscillations, outside of major recessions.  MLPs have products that are non-discretionary (people and businesses need them)
  • Rowdies: Very dependent on local economic strength, cyclical, Rowdies have product that relies on discretionary funds

 But, for one night at least, it was all worth it…now if each of you will just click over to the team store and buy several items, that would be great…

May 1st, 2012

General, MLP Basics

Incentive Distribution Rights Data

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I have had several questions lately regarding incentive distribution rights, so here is some data on IDRs free of charge, just remember you get what you pay for…

An article will come out soon in Midstream Business Magazine on the subject of IDRs that will feature several quotes from me and some data I pulled together for the article.  The original assignment from the editor was something like, I hear a lot about how IDRs are going away, go write an article on the Death of the IDR.  But I think I was able to convince the author that IDRs are not dead, in fact of the last 10 MLP IPOs, 9 of them had IDRs, including 100% of the last 10 midstream IPOs.  The chart below lists the last 10 MLP IPOs.  Note I am not counting MLPs without a stated minimum quarterly distribution (variable distribution MLPs like RNF and UAN).

There are two reasons I can see why IDRs are still prominent for midstream MLPs:

  • Doesn’t matter at the IPO – bankers will tell MLP management team (correctly) that the market will not give any extra IPO valuation credit for going public with no IDRs.  A few years down the road, when the MLP reaches the top tier, then management can start to hint that the IDRs are affecting their cost of capital.
    • At that point, management can extract all of the extra credit that was not going to be given at IPO for those IDRs (and more) when it buys the IDRs back with L.P. equity.  Short sighted investors have yet to demand that IDRs go away, so why take them away at IPO.
    • Reminds me of the saying, attributed to Thomas Jefferson: the exact amount of tyranny you will live under is the amount you put up with
  • Competitive Bids Mostly Against other MLPs – a greater percentage of E&P MLPs have chosen to IPO with no IDRs or with an LLC structure.   The thesis behind E&P MLPs is that they will be the entities that roll up the mature properties of the country.  When they are bidding on these assets, E&P MLPs are going up against corporations, and cost of capital is paramount to E&P MLPs being able to outbid E&P corporate bidders.
    • Midstream MLPs are mostly competing with each other, because there are so many more MLPs.  There are not many public corporations whose primary business is gathering and processing.

Click below for an excel file with a list of every MLP and its corresponding top IDR tier, current GP % take (not counting any temporary givebacks like $ETE announced yesterday), and some notes on the MLPs that don’t have IDRs.  You will note that the MLPs with paying out the most total cash flow to their GP, are in order: KMP (45%), ARLP (40%), ETP (37%), PAA (32%), WPZ (28%).

IDR Data

IDR Data (older Excel versions)


Related Posts:

General Thoughts on General Partners

Distribution Basics