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September 8, 2011

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MLP Makers: Where do MLPs Come From?

Here in Boston, tech entrepreneurs are everywhere, and so are their venture capitalist backers.  The accepted route to building a multi-billion technology or internet company was memorialized in “The Social Network” last year (if you subtract the lawsuits and drama over cutting out your friend and co-founder).  That film chronicles how The Facebook went from dorm room to Silicon Valley darling in a matter of months, before eventually becoming the ubiquitous worldwide “like” machine that it is today.  That film made a hero out of Peter Thiel, who made a timely angel investment in Facebook.
But how does it work for MLPs, who are the backers of these companies, the Peter Thiel’s of the MLP industry?

In MLP land, it’s a mix.  MLPs can get started organically, growing in the traditional slow and steady way before executing an IPO for growth capital.  Examples of this include Enterprise Products Partners ($EPD), Global Partners ($GLP), Inergy ($NRGY) and Copano Energy ($CPNO).  There are also many examples of publicly-traded parent companies launching MLPs as a subsidiary company.  Examples include: Williams Partners ($WPZ), El Paso Pipeline Partners ($EPB) and Boardwalk Pipeline Partners ($BWP).
Then there are MLPs that are created with the help of growth capital or private equity from industry players.  There are some private equity firms that will launch greenfield projects that they will someday sell off to an MLP or take public as an MLP, like Caiman Energy is doing right now with processing facilities in the Marcellus Shale.  These players tend to do one-off deals.  They invest heavily into the projects to get them up and running, then sell or take them public and start over.  Another example is the management team behind Falcon Gas Storage and Peregrine Midstream (which was recently purchased).
Then there are active private equity firms that have been involved with multiple MLPs.  These are the MLP Makers.  Top of the list in terms of largest and most active is probably Riverstone Holdings, LLC.  Others include Natural Gas Partners, American Infrastructure MLP Fund, Yorktown, Quantum Energy Partners and First Reserve Corporation.  Each of these firms is either planning an IPO in the MLP space or is actively involved in management of a currently trading MLP, so its important to know about these financial sponsors and how they’ve managed MLP investments in the past.  It is particular important to review how quickly and how these sponsors have exited the MLP investments in the past, because if it worked before, its likely these firms will run the same playbook the next time.
Riverstone – Riverstone Holdings, LLC is an energy- and power-focused private equity firm founded in 2000, with approximately $17 billion of assets under management across six investment funds.  Led by founders Pierre Lapeyre and David Leuschen, Riverstone has been associated at various times with at least 6 MLPs, and 1 royalty trust.  Riverstone also has an investment in Swank Capital, one of the 3 or 4 largest MLP money managers (more than a few multiples larger than Curbstone Group, but give it time).
MLP Investments (past and present):

  • Magellan Midstream Holdings (MGG / $MMP) – Realized.  Purchased general partner of MMP in June 2003.  The GP was taken public in 2006 as MGG, then merged into MMP in 2009.
  • Buckeye GP Holdings (BGH / $BPL) – Realized.  Purchased GP of BPL in May 2004.  Then GP was taken public in 2006 as BGH, and was merged into BPL in 2010.
  • Kinder Morgan Inc ($KMI / $KMP) – Unrealized.  Part of the group that took Kinder Morgan Energy Partner’s GP private in 2007 and public again in 2011, as KMI.
  • Semgroup, now Blueknight ($BKEP) – Realized.
  • Niska Gas Storage ($NKA) – Unrealized.  Invested pre-IPO in May 2006, took NKA public in 2010, Riverstone continues to own GP and significant amount of L.P. units.
  • USA Compression ($USAC) – Unrealized.  Owns 97% of the GP, USAC filed for IPO on June 8th, see latest filing here.
  • Riverstone has also made an investment in a company called Enduro Royalty Trust that filed to go public in May 2011.


Natural Gas Partners – NGP likes to take control positions in MLPs it owns, and hold them for a long time.  NGP had success with ETE, but has struggled with EROC, although they’ve stuck with that investment.  So, track record is pretty spotty.
  • Energy Transfer Equity ($ETE) – Realized when ETE went public in 2006.
  • Eagle Rock Energy ($EROC) – Unrealized.
  • Memorial Production Partners (MEMP) – Unrealized.  MEMP filed initial IPO docs in June.
American Infrastructure MLP Fund – Newer player, firm is run by Bob Hellman, co-founded by Matt Carbone and George McCown.  The co-founders first success was with Stonemor, an unconventional but unquestionably successful MLP.  AIMF seems to focus on finding management teams and partnering with them to grow into a company large enough to take public.  MLP Investments:

  • Stonemor Partners ($STON) – Realized.  Hellman is still on the board.
  • Oxford Resource Partners ($OXF) – Unrealized.  OXF went public in 2010.
  • American Midstream Partners ($AMID) – Unrealized.  AMID went public in July 2011.
Quantum Energy Partners – Primarily focused on E&P companies, and launched the E&P MLP IPO frenzy in 2006 with the IPO of Linn Energy. MLP Investments:
  • Linn Energy ($LINE).  Realized. IPO in 2006.
  • QR Energy ($QRE) Realized.  IPO in 2010.
Yorktown – there is not much information out there on this firm, they don’t have a website that I can locate, but they are active in the MLP space with a pending IPO and past investments in XTEX and SGU.  Each of their previous 2 investments were made after the MLPs had cut distributions and were distressed, but each has recovered somewhat, making Yorktown lucky or good.  According to the MCEP S-1, Yorktown has $3.0 billion in AUM and has been making investments since 1991.
  • Crosstex Energy, L.P. ($XTEX) – Realized.
  • Star Gas Partners ($SGU) – Realized.
  • Mid-Con Energy Partners ($MCEP) – Unrealized.  Currently in IPO registration process.
First Reserve Corporation – First Reserve is a huge energy private equity firm that has selectively made MLP-related investments in the past, and now have their own MLP platform in CMLP.  MLP Investments include:
  • Natural Resource Partners ($NRP) – Realized.  First Reserve bought into NRP’s subordinated units in 2003.  Exited the subordinated units in August 2005, in the first (and only) public offering of subordinated units in MLP history.
  • Pacific Energy Partners – Realized.  Bought minority stake in GP from Lehman Brothers in 2005, sold along with Lehman when Plains All American purchased the company in 2006.
  • Crestwood Midstream Partners ($CMLP) – Unrealized.  First majority MLP investment, completed in 2010, when a First Reserve subsidiary purchased the general partner and brought in Bob Phillips to run the company.

There are others that have been or are affiliated with one MLP, including: Warburg with $NGLS, HM Capital with $RGP, Lindsay Goldberg with Petrologistics, Limerock Resources with LRR Energy, and others.
Disclosure: The information in this article is not meant to be financial advice, we are not your financial advisor and I am posting my comments for informational purposes only.

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