Randomly Noted

Investors looking for an arcane  way to play the shortage in natural gas storage may have just gotten that opportunity. PAA Natural Gas Storage L.P. filed with the Securities and Exchange Commission to sell roughly $200 million of limited partnership units that would trade on the New York Stock Exchange.

The deal may be attractive to investors beyond the reasons connected with the natural gas business. There haven’t been many master limited partnership deals like this one in recent years. In fact, MLPs are pretty much limited to the energy world. The advantage of owning a partnership interest: partnerships aren’t taxed. They distribute income to partners who then pay taxes. In a traditional corporate structure, earnings are taxed before a distribution to investors is made. And then the dividend received by investors is taxed once again. So, one layer of taxation for the MLP.

The gas storage business has been a good one in recent years as producers have ramped up supply and therefore have been keeping storage facilities full. And PAA Natural Gas hopes to grow its business by having more storage capacity. But it won’t be growing the business through proceeds of the MLP offering. That’s because proceeds will go to its parent, Plains All American Pipeline.

The deal is a good one for Plains. It, along with partner Vulcan Capital, bought the storage facilities from Sempra Energy, for about $250 million in 2005. In September of last year, Plains bought out Vulcan’s 50% ownership in the venture for $220 million – roughly valuing the business at $440 million. If the MLPs are sold at $20 each (between the $19 to $21 price talk range), the MLP will have a market cap of $698 million.

And Vulcan, owned by Microsoft co-founder Paul Allen, did pretty well on the investment as well. The question is how new investors would do.