Mineral and Royalty Interest MLPs: An Alternative Exit For PE-Backed Mineral and Royalty Interest Cos. -

Oil and gas exploration companies no longer have to go door-to-door, or ranch-to-ranch, to negotiate oil and gas leases with individual mineral interest owners. Over the last decade or more, pure-play mineral and royalty interest companies quietly began doing the work for them. A quick internet search generates hundreds of companies aggregating blocks of mineral interests all over the United States. Some of these outfits are small, thinly-capitalized operations, while others are sophisticated, well-funded enterprises with large holdings throughout the country. The large consolidators typically are backed by private equity firms and managed by some of the most experienced management teams in the industry.

As this subsector matures, private equity sponsors of bundled mineral and royalty interests are evaluating dual-track exit alternatives through either a sale or an initial public offering of mineral and royalty interest master limited partnerships (MLPs). These MLPs are tax efficient, “non-cost-bearing” growth vehicles that may achieve compelling valuations in the public markets by providing attractive yields and long-term growth potential.