Linn Energy LLC (LINE), Berry Petroleum Company (BRY): LPs Looking Increasingly Like CanRoys

This isn’t to suggest that the deal is a bad one. On the contrary, it will probably work out very well for Linn and its unit holders. So far, Linn has done a pretty enviable job of managing its oil and gas properties, effectively using hedging to ensure consistent performance. Adding more properties just makes it that much better a company. What is less clear, however, is what this deal will signal to the U.S. government.

Tax Benefits

The merger has kicked off a discussion of how much of a tax benefit LPs are getting from the government. Bloomberg writes: “The nonpartisan Joint Committee on Taxation quadrupled its cost estimate for exempting the fast-growing ‘master limited partnerships’ from corporate income tax in the year ended in September to $1.2 billion from $300 million. The annual cost will rise to $1.6 billion by fiscal 2016, the committee said.”

Those are big numbers that will draw serious attention. Add to this the fact that carried interest is a public target and investors should be concerned. Why? That particular tax loophole benefits a number of financial companies that are structured as, you guessed it, limited partnerships, including Blackstone Group and Carlyle Group LP. Adding the LP structure to the carried interest debate won’t take much effort.

A Small Jump

As more and more companies make the switch to LPs, even though they are only tangentially related (if even that much) to promoting energy development, the scrutiny of the structure will only increase. While some in Washington are calling for expanding the LP benefits to companies in the renewable energy space, which may not be enough to save the structure in difficult economic times. LP investors should keep an eye out for change

The article LPs Looking Increasingly Like CanRoys originally appeared on Fool.com and is written by Reuben Gregg Brewer.

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