LyondellBasell mulls US master limited partnerships for crackers

26 October 2012 21:09  [Source: ICIS news]

HOUSTON (ICIS)--LyondellBasell is the latest among olefin producers to consider establishing master limited partnerships (MLPs) to gain tax advantages, the company's chief executive said on Friday.

"We have done some work around the MLP concept, but it is preliminary," said Jim Gallogly, chief executive of LyondellBasell. He made his comments during an earnings conference call.

"There are many complexities in this area, so it will take some time to develop a firm opinion as to whether this opportunity can be executed by us for the benefit of shareholders," Gallogly said.

Under an MLP, companies could carve out existing crackers into the partnership.

Several companies are building crackers in the US, and they could create MLPs for these new plants.

In addition to LyondellBasell, Eastman Chemical and Dow Chemical are also looking into MLPs.

MLPs would be attractive because of their tax structure.

They are required to “pay out all earnings not needed for current operations and maintenance of capital assets to their unit holders in the form of quarterly cash distributions”, according to the National Association of Publicly Traded Partnerships.

The fact that investors place higher valuations on publicly-traded MLPs than their commodity chemical counterparts means financing through an MLP structure for such projects could make sense.

Petrochemical producers are considering MLPs following a 12 October ruling from the Internal Revenue Service (IRS), which found that income derived from processing natural gas liquids (NGLs) into olefins would constitute qualifying income under such a partnership.

Current MLPs include Calumet Specialty Products Partners, Enterprise Products Partners, PetroLogistics LP and Sunoco Logistics Partners.

Additional reporting by Stefan Baumgarten and Joseph Chang

By: Al Greenwood
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