Hot MLP Play: Plains All American

This column was written by Douglas Skrypek, managing director and chief investment officer of Parthian Capital. He is a specialist in investing in master limited partnerships, primarily midstream energy.

I am a fan of master limited partnerships, as I have written in the past. In this volatile market, and deteriorating economy, MLPs provide investors with a steady income, an opportunity for capital gain and a tax incentive.

One MLP worth serious consideration is Plains All American Pipeline (PAA Quote), which handles the transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas, or LPG. The company moves more than 3 million barrels per day of these products.

Plains All American also owns a 50% interest in Vulcan Gas Storage LLC, which develops and operates natural gas storage facilities. PAA owns strategically located assets, which play a vital role in the logistical chain of both U.S. and Canadian energy supplies.

PAA's business can be broken into three units: Transportation, facilities and marketing. The transportation segment generally consists of fee-based activities involved in transporting crude oil and refined products using pipelines, gathering systems, trucks and barges.

The company gets revenue from tariffs, third-party leases of pipeline capacity and transportation fees. The facilities segment consists of fee-based activities associated with providing storage, terminalling and throughput services for crude oil, refined products and LPG, as well as LPG fractionation and isomerization services. PAA generates revenue through a combination of month-to-month and multi-year leases and processing arrangements.

The facilities segment includes PAA's investment in PAA/Vulcan. The company owns and operates approximately 26 billion cubic feet of underground natural gas storage capacity. PAA/Vulcan is constructing an additional 24 billion cubic feet of underground storage capacity, which is expected to be placed in service in stages over the next several years.

Plains All Amer Pilpeline LP as of 16-Dec-2008 Yahoo! Inc.