MASTER LIMITED PARTNERSHIPS PRIMER

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1 MASTER LIMITED PARTNERSHIPS PRIMER For more than 25 years, Master Limited Partnership (MLPs) have financed the expansion of our domestic energy infrastructure, delivering a wide variety of energy resources from the production fields to American homes, businesses, and communities.

2 WHO IS NAPTP? The National Association of Publicly Traded Partnerships (NAPTP) is the nation s only trade association representing publicly traded limited partnerships (PTPs), which are commonly known as master limited partnerships (MLPs) or limited liability companies (LLCs). The NAPTP has successfully advocated for the interests of its member companies in Washington, D.C. and across the country since WHAT IS AN MLP? Master limited partnerships (MLPs) are primarily businesses engaged in midstream energy activities (pipelines, storage, processing, terminal facilities, etc.). The structure narrowly defined by Congress in 1987 enables qualifying businesses to raise capital from a broad base of investors by utilizing public equity markets and to organize as flow through tax entities.

3 MLPS: INTEGRAL TO AMERICAN ECONOMIC AND ENERGY POLICY Master limited partnerships (MLPs) are currently an integral way our nation s private sector finances the infrastructure needed to fully utilize newly discovered domestic energy resources leading to greater energy independence for the United States and to ensure that a wide variety of energy products make their way efficiently and safely from the production fields to American homes, businesses and communities. TO MEET OUR ENERGY POTENTIAL IN NORTH AMERICA, AN ADDITIONAL $251 BILLION WILL BE NEEDED $12.4 $13.2 $12.2 $11.3 $15.8 $23.3 $29.3 $251.0 MLP INVESTMENTS IN BILLIONS (APPROXIMATELY)

4 MLPS ARE PROVEN MLPs have worked as intended for more than 25 years and have helped to position the United States to achieve greater energy independence by developing and transporting our domestic energy supplies. Twenty six years ago, Congress examined whether MLPs should continue to be taxed as partnerships or pay corporate tax. It decided that while MLPs were not appropriate for all industries, certain ones including the energy industry should maintain their ability to attract investor capital through use of the MLP structure, which is vital to our country s well being. PUBLICLY TRADED PARTNERSHIPS OWN INTEREST IN APPROXIMATELY 310,000 MILES OF NATURAL GAS, NATURAL GAS LIQUIDS, REFINDED PRODUCTS AND CRUDE OIL PIPELINES.

5 The majority of MLPs operate in the midstream energy sector, which is focused on activities such as natural gas gathering and processing; transportation of natural gas and associated liquids, crude oil, refined products and petrochemicals by pipeline, ship, or truck; storage; and distribution service. MLPs have been in existence since 1981 and in 1987 Congress more narrowly defined MLPs by limiting its use to the natural resources industry. Natural resource MLPs now comprise about 80% of all MLPs by number. In 2008 Congress expanded the MLP structure to allow the transportation and storage of biofuels. PTP S MARKET CAPITALIZATION APPROXIMATELY $490 BILLION 75% Midstream Energy Infrastructure Services Investment/Financial Natural Resources Other Energy Real Estate & Other 4% 3% 8% 10%

6 ECONOMIC VALUE MLPs generate significant value to the U.S. economy by investing billions in our energy infrastructure, supporting hundreds of thousands of jobs, and providing a reliable income stream for investors, many of whom live on a fixed income. They have raised tens of billions of dollars in private capital, the vast majority of which is used to finance the building of our nation s expansive energy infrastructure; generating significant economic benefits in terms of new jobs and modern energy assets, as well as a reliable income stream for primarily fixed income investors. MLPs operate in every state, producing, processing, transporting, storing, and distributing energy products to meet the needs of American homes, businesses and communities. Our economy depends on the free flow of energy supplies and MLPs play a critical role in this activity. A NAPTP study found that midstream energy MLPs support approximately 323,000 U.S. jobs as of 2012, both directly and through supply chain linkage. According to third party studies, over the next five years the midstream MLP industry will support more than 1.6 million jobs on an annual basis, or about 330,000 jobs per year, and will pay cumulative wages totaling $147 billion. 323,000 U.S. JOBS Supported by midstream energy MLPs in 2012 alone. The current total market capital of MLPs is around half a trillion dollars, of which over 80% is in the natural resource sector. According to NAPTP surveys, the majority of investors providing this capital up to 80 percent are individual retail investors. Many are seniors roughly 75 percent are over the age of 50. In addition to the individuals investing directly in MLPs, there are many more who are investing in MLPs through mutual funds and other investment options.

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8 ENERGY INFRASTRUCTURE MLPs ensure that domestic oil, gas and refined products get from the production fields to the marketplace. Most importantly, it is MLPs in large part, which will allow the U.S. to realize its potential for energy independence by building the infrastructure needed to connect newly discovered energy assets to consumers. Midstream MLPs own approximately 310,000 miles of natural gas, NGL, refined product, and crude oil pipelines, a vast network ranging from local gathering lines, to major interstate pipelines traversing thousands of miles. These pipelines are the backbone of our domestic energy system, serving as the link between energy producers and end use consumers. MLPs do not just own and operate existing midstream assets; they are building, expanding, and operating new domestic energy infrastructure projects. Most importantly, it is MLPs that will advance the potential for energy independence by allowing newly developed sources of energy to be fully utilized. Some of these new production areas do not have the infrastructure required to efficiently process and transport the underlying resources. Pipelines transport 60 to 70% of oil shipments and essentially all natural gas in the U.S. The INGAA Foundation in 2011 estimated that over the next ten years, North America will need to invest $10 billion in natural gas, natural gas liquids, and oil pipelines and related infrastructure. Over 25 years ( ), $251 billion of new investment will be needed. Those investments are being made to a large extent by MLPs. From 2007 through 2012, the largest MLPs have invested approximately $88 billion in new infrastructure construction. Many of these investments support shale play development.

9 MIDSTREAM ENERGY INFRASTRUCTURE WORKFLOW RENEWABLE FUELS Stored for Use Distributed CRUDE OIL REFINED OIL Transported Refined Stored NATURAL GAS Fractioned MIXED NATURAL GAS LIQUIDS Stored Transported Transported NATURAL GAS Transported Processed Produced Produced

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11 TAX TREATMENT Flow through taxation lowers the cost of capital for a capital intensive industry and provides ordinary investors with a reliable income source in return for participating in the build out of U.S. energy infrastructure. The first MLP was formed in 1981 and by 1987, a concerned Congress stepped in to establish limits as to what activities would allow an MLP to receive pass through tax treatment (IRC 7704(d)). As a result, 90% of an MLP s qualifying income must come from a defined and focused set of activities including energy and/or natural resources. In 2008, Congress expanded this definition of eligible activities to include the storage and transportation of renewable and alternative fuels, such as ethanol, biodiesel and carbon dioxide used for sequestration. NAPTP strongly recommends that Congress continue to preserve the ability of business enterprises to choose the structure that is the most efficient and effective for their particular business activities. In particular, NAPTP believes that publicly traded entities that are currently able to choose flow through taxation be allowed to continue doing so. To do otherwise would slow our nation s progress towards energy independence by reducing the capital available for needed energy infrastructure. It is estimated that the higher cost of capital resulting from corporate taxation of MLPs would reduce pipeline investment by close to 30 percent or more immediately following the change to corporate tax status, with investment still 13 percent to 20 percent lower ten years after the change. As a result of such a delay in building the infrastructure needed to deliver energy to consumers, U.S. businesses and households would face over $13 billion in higher annual energy costs, and possibly considerably more if reduced investment in energy transportation infrastructure led to serious bottlenecks that impacted energy prices.

12 CONTACT MARY LYMAN, EXECUTIVE DIRECTOR 4350 North Fairfax Drive, Suite 815 Arlington, Virginia Phone: (703) Fax: (703) For all media inquiries, please contact: Story Partners, LLC Amos Snead Phone: (202)