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Master Limited Partnership (MLP)

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Master Limited Partnership (Oil & Gas MLP)What is a Master Limited Partnership (MLP)

A Master limited partnership (MLP) is a publicly traded types of limited partnership (Oil & Gas MLPs are the primary kind).  There are two types of partners, general and limited.  The general partner is responsible for managing the MLP’s affairs and receives compensation linked to its performance.  Limited partners provide capital and receive periodic income distributions from cash flow.  To be legally classified as an MLP, it MUST derive most (90%) of its cash flow from real estate, natural resources, and commodities, and pay out a large portion of the cash flow in distributions to investors.

History of Master Limited Partnerships (MLP)

Many energy companies use MLPs to raise capital to explore and produce oil and gas.  Apache Oil was established as the first MLP in 1981.  Other companies followed and by the mid-1980s MLPs had become so popular that other industries, such as restaurants, hotels, and even the Boston Celtics formed MLPs.

In 1987, Congress changed the tax code to require that 90% of an MLP’s cash flow must come from specific sources (e.g. natural resources-related activities such as exploration, production, transportation, and storage).

Oil and gas MLPs declined in popularity when oil and gas prices began to decline because in became nearly impossible to maintain the large distributions that investors expected.  This led to energy companies selling or spinning off their midstream assets (e.g. pipelines and processing plants) into MLPs because they had the cash flows needed to maintain the distributions investors expected.  The majority of MLPs today are midstream-focused.

The decline in oil and gas prices has caused many MLPs to drop significantly in value and to stop paying distributions. If you suffered losses investing in oil and gas MLPs or any other Master Limited Partnership and would like a free consultation with a securities attorney, then please call Galvin Legal at 1 1-800-405-5117.

Galvin Legal is a national securities arbitration, mediation, fraud, and investor protection law practice. For more information on Galvin Legal, please visit www.galvinlegal.com or call 1-800-405-5117.

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