Publicly traded oil and gas companies, not unlike other companies that exist, offer benefits to potential investors.  These benefits are an attempt to attract investors to the company.  With the internet, being publicly traded is easier to conduct business and get the company name out there.  There may be some really good benefits, but there are also limitations.  Looking at three of these companies should give some insight on how this all works.

There are many partnerships which are publicly traded on the web.  EV Energy Partners, LP, Energy Transfer Partners, and Vanguard Natural Resources, LLC are three of these partnerships.  These companies, like the others, are trying to get people to invest.  It is important to take a couple of things to consider.  The benefits of investing and the risks that are involved are the things to check on.

EV Energy Partners makes the following opening benefit offer when considering investing:  “We utilize our significant experience and resources to invest in lower-risk oil and gas producing properties in North American onshore basins. As always, we strive to provide stability and growth in distributions over time.” EV Energy Partners (2010).  This benefit does sound good to a lot of investors.  Lower-risk is something that would seem attractive.  Energy  Transfer Partners offers the following benefits: “Unitholders are limited partners in the Partnership and receive cash distributions.  A partnership generally is not subject to federal or state income tax.” Energy Transfer Partners (2016).

The third company offers the following investment highlights: “Active management team that is well aligned with unitholders, high quality, long-lived reserves with low decline rates, asset base which generates stable cash flow, multi-year hedge program which mitigates commodity risk, geographic and commodity diversity, structure is unitholder friendly (no IDRs), attractive distribution yield, track record of disciplined acquisition strategy” Vanguard Natural Resources (2016).  These are the benefits that these companies have to offer their potential investors.

The disclaimers in regards to limitations placed on losses may not always apply to these partnerships.  EV Energy Partners has the following loss limitations in place: any losses we generate will be available to offset only our passive income generated in the future and will not be available to offset income from other passive activities or investments.  If we dispose of all or only a part of our interest in an oil or gas property, unitholders will be able to offset their suspended passive activity losses from our activities against the gain, if any, on the disposition.  Their share of our net income may be offset by any of our suspended passive losses, but it may not be offset by any other current or carryover losses from other passive activities, including those attributable to other publicly traded partnerships.  This is just one companies disclaimer.

The disclaimer for the Energy Transfer Partners in regards to the passive loss limitation rules is as follows: “any losses generated by us will only be available to offset our future income and cannot be used to offset income from other activities, including other passive activities or investments. Unused losses may be deducted when the unitholder disposes of his entire investment in us in a fully taxable transaction with an unrelated party. A unitholder’s share of our net passive income may be offset by unused losses from us carried over from prior years, but not by losses from other passive activities, including losses from other publicly traded partnerships.” Energy Transfer Partners (1999).

The third partnership’s rule on the passive loss limitation is as follows: “any losses we generate will only be available to offset our passive income generated in the future and will not be available to offset income from other passive activities or investments, including our investments or investments in other publicly traded partnerships, or a unitholder’s salary or active business income. If we dispose of all or only a part of our interest in an oil or gas property, unitholders will be able to offset their suspended passive activity losses from our activities against the gain, if any, on the disposition. Any previously suspended losses in excess of the amount of gain recognized will remain suspended” Vanguard Natural Resources, LLC (2007).  As this last set of rules shows, a lot of these partnerships keep the same rules in place.

Looking at the three companies and how they are set up.  Benefits look very appealing when the company first presents them.  Making sure that everything is as good as it seems is the best way to ensure a good investment.  The passive loss limitations are dependent upon one thing.  Whether or not the company disposes of all or only part of their interest, determines how the offsets will be worked out.  New investors is a way that helps the company grow and expand.

References

EV Energy Partners (2010). We’re aligned with you.  Retrieved from: http://ir.evenergypartners.com/

Energy Transfer Partners (2016) Investor FAQs Retrieved from: http://ir.energytransfer.com/phoenix.zhtml?c=106094&p=irol-faq

Vangaurd Natural Resources, LLC (2007) Form S-1 Registration Statement Under The Securities Act of 1933. Retrieved from: http://vnrllc.com/wp-content/uploads/2015/02/VanguardNaturalResourcesLLC_S1_20070425.pdf