Investing in Oil and Gas Partnerships

By | April 14, 2014

Investing in Oil and Gas partnerships can be quite lucrative and a great way to diversify your portfolio. In the past 12 years (since 2002), investing in Master Limited Partnerships in Oil and Gas has beaten every market index in the 11 of the 12 years. In the past 5 years, Oil and Gas Master limited partnerships has returned an average of 66%, wow.

oil gas mlp

So what are Oil and Gas Partnerships? Many pipelines, holding tanks, exploratory drilling operations are all owned and done with businesses called master limited partnerships. When it comes to these oil and gas partnerships, a limited partner investor gets the best of both worlds, generous cash redistributions and growth.

Limited partnerships are a form of ownership that limit the liability of the limited partners (investor) while the few general partners run the day to day business. The limited partner invests capital into the business and receive and excess earnings in the form of dividends. The general partners run the business and receive incentive distributions (IDRs). There are also Master limited partnerships are just like limited partnerships, but are more liquid and easily tradable in the market stock exchanges.

Tax advantages: The tax incentives listed above are available on a pass-through basis. MLPs do not pay a corporate tax as the majority of profits are paid out to the investor, but the tax burden is now on the limited partner. So annually, the investor will receive a Form K-1, which he or she will need to file along with their own taxes each year.

Dividends: Compared to most equity, oil and gas MLPs offer generous cash dividends that are quite high.

To the retail investor, MLP’s (Master Limited Partnerships) offer a great way to gain exposure to the oil industry and receive generous dividends and tax breaks. There are many oil and gas MLP’s that are traded and I won’t go over the details on which to choose from, but doing proper due diligence and investing in the right MLP can be quite lucrative.


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