Cheap Oil Benefits Refinery MLPs - Wall Street Daily
That fact was emphasized last Friday when one of the largest MLPs, Linn Energy ( LINE ), finally eliminated its dividend. Linn Energy’s stock price has fallen nearly 90% in the last year, which is especially disquieting because LINE was famous for using sophisticated derivatives to hedge the selling price of its output. Yet, in spite of the past year’s carnage, one corner of the energy MLP space has had a pretty good year: refinery MLPs. Indeed, oil refineries actually benefit from lower crude prices because such prices encourage consumption. Ford now produces models that retail for around $60,000. These sell heavily to both “blue-collar entrepreneurs” and office types seeking the cachet from a “cowboy Cadillac. Now, there are relatively few refinery MLPs, in part because the MLP tax structure requires companies to pass dividends through to shareholders to receive the tax benefits. Unfortunately for refining companies, no simple hedge exists for the spread between crude and refined prices, let alone for the operating efficiency variances that depend on capacity utilization. Source: www.wallstreetdaily.com
