In 2008, as oil was moving through its lows of $32 a barrel, there was obvious carnage going on in the stocks of oil companies. But one group was establishing themselves as the most battered, least favored of all the sub-sectors in the energy world – The pipeline and storage companies.
The MLP 'craze' was already at full tilt in the years leading up to the oil collapse, and dozens of pipeline and other midstream players happily watched their stocks soar in the tax-advantaged mania that the limited partnership vehicle delivered. They were so smart, writing down decaying assets and delivering 85 percent or more of their revenues to their 'partners' – hedge funds were using shares of the companies as placeholders for cash, lapping up the 'distributions' instead of settling for 3 percent on treasuries (at the time). Pensioners flocked to them. The model might have had a cyclical 'ponzi-like' feel to it, with ever-competing debt cycles, but as long as the product flowed and the distributions got paid, everyone was happy to look the other way.
Then the market nosedived.
As much as the continued production and transport of U.S. crude and natural gas was at risk, 2008 had an added ingredient that annihilated the MLP's – credit lock-up. Without available credit to fund necessary expansion, the group became untouchable. In 2008 and early 2009, MLP's dropped well over 50 percent of their value, with some of even the most conservative members paying…