FERC Issues Final Rule Regarding Income Tax Allowances in Rate Setting for Pipelines: MLPs Not Precluded from Tax Allowance
MLPs, also known as publicly traded partnerships, are commonly used by energy companies and investment funds for the tax efficiencies, access to capital markets and strong yield-based returns they offer. They require a certain percentage of gross income to come from qualifying sources, including income derived from the exploration, production, development or transportation of any mineral or natural resource. While MLPs have seen sizable growth in recent years, their formation and management structure poses several organizational tax issues and complex governance, accounting and regulatory concerns. These challenges require a comprehensive grasp of relevant legal considerations from a corporate, energy and tax perspective. Our team has been heavily involved in this area since the late 1990s.
Our lawyers have experience with all of the key industries in which MLPs operate, especially the midstream space as well as propane, fertilizer and coal. We regularly address the complex tax, business, securities and debt structuring issues that arise in MLP development and operations, working closely with the corporate sponsors, underwriters, investment banks and various institutional investors, in addition to MLPs and their general partners. We also regularly represent a number of Special or Conflicts Committees of the Boards of MLPs in asset drop‑downs and other related party transactions.
Our corporate, tax and finance practices support the planning, formation and subsequent activities of MLPs. We provide an integrated approach that combines expertise in the areas of:
Through our working relationships with the government agencies that regulate the industry, including the IRS and SEC, we collaborate with key industry players to be at the forefront of regulatory developments affecting MLPs. We are also a member of, and an active participant in, the Master Limited Partnership Association (MLPA). One of our partners served as the primary drafter of comments submitted by the ABA Section of Taxation on proposed IRS regulations regarding qualifying income under section 7704 for MLPs, submitted January 4, 2016.
We work closely with members of our 145-lawyer global Energy & Infrastructure practice to provide our clients with a nuanced understanding of the energy industry in establishing and structuring MLPs. Our energy practice was recognized as a Law360 Project Finance Group of the Year in 2016—for the fourth time—and is Chambers-rated in 24 different Energy & Infrastructure categories globally, with completed projects in 95 countries and all 50 U.S. states.
Orrick’s global, cross-practice capabilities are essential elements of an integrated MLP service platform that assists clients in all stages of MLP business.
Archrock, L.P. (formerly Exterran Partners, L.P.) │ Acquisition of a natural gas compression services provider with operations in Mexico and Argentina.
Buckeye Partners, L.P.
Conflicts Committee, Spectra Energy Partners, LP │ The US$1.5 billion sale (reverse drop down) of two natural gas liquids pipelines to Spectra Energy.
Delek Logistics Partners │ Investment into two newly formed LLCs, including related pipeline construction and operation agreements.
Delek Logistics Partners’ Conflicts Committee
Enterprise Products Partners, L.P. │ Multiple acquisitions of gas gathering and processing assets.
Ferrellgas Partners (NYSE: FGP) | Represented the client, and MLP propane provider, with regard to the following matters:
Hoover Energy Partners
Kinder Morgan Energy Partners (NYSE: KMP)
Seadrill Partners LLC │ Represented Conflicts Committee of Seadrill Partners LLC in connection with amendments to three secured credit facilities that relate to rigs purchased by Seadrill Partners from Seadrill Limited to insulate Seadrill Partners from events of default related to Seadrill Limited’s likely use of chapter 11 proceedings to implement its restructuring plan and continued representation of the Conflicts Committee in Seadrill Limited’s bankruptcy proceedings.
Special Committees of the Board of Directors of general partners of master limited partnerships │ Special Counsel in such partnerships' acquisition of midstream oil and gas assets from affiliates of the applicable general partner and such partnerships' mergers, such as Heritage Propane Partners, LP.
Potential exposure to derivative suit liability in light of recent ruling in El Paso Pipeline Partners, L.P., which awarded US$171 million in damages to an El Paso MLP common unitholder for breach of fiduciary duty.
TC Pipelines | Numerous offerings and acquisitions, including:
Tesoro Logistics (NYSE: TLLP)
Valero Energy │The formation of Valero L.P., now NuStar, and design and implementation of an innovative structure to reduce taxable gain on sale of assets to Valero.
Western Gas Resources (Anadarko) │ US$130 million tax consequences of its acquisitions of Marcellus Midstream assets from Chesapeake as well as a number of additional Marcellus gathering assets worth US$300 from joint ventures in which Anadarko had an interest.
Energy-focused private equity firm │The formation of a master limited partnership with two major natural gas utilities, which resulted in a combined company with assets of nearly US$11 billion.
Group of entities │ Equity investment for first round of funding with respect to general partner of Energy Transfer Partners.
National banking corporation │Proposed emergence from bankruptcy as an MLP owning interests in real estate.
National investment bank │Formation and funding of a private master limited partnership in the coal industry.
PE portfolio companies │Tax advice on MLP structures.
Publicly traded MLP │US$400 million bridge loan facility for the acquisition of natural gas pipeline assets.
Various MLPs and sponsors │Reporting obligations under the Securities and Exchange Act of 1934, including drafting Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.