Miller/Howard Investments
Miller/Howard Podcast Series
2018 Energy Outlook
Upstream, Exploration & Production Series—
Part 1: The Shale Revolution
A brief history of oil and gas development prior to the shale revolution.
Adam Fackler, CFA, Senior Research Analyst  |  Full Bio (PDF)
Upstream, Exploration & Production Series—Part 1: The Shale Revolution
Upstream, Exploration & Production Series—Part 2: The Industry Has Matured
Upstream, Exploration & Production Series—Part 3: The Oil Majors Move In
Upstream, Exploration & Production Series—Part 4: Investing Upstream


Oil and gas development is not new in the US. The first US oil well was actually drilled in northwest Pennsylvania in 1859. Oil production subsequently reached a peak in 1970 at roughly 9.6 million barrels a day, before declining through 2008. George Mitchell—he’s often referred to as the father of fracking—started experimenting with hydraulic fracturing in the 1980s before utilizing a modern-day frack in 1997. Five years after that, Mitchell actually combined horizontal drilling with this improved frack. The combination has led to an American energy renaissance driven by increased resource potential, improved well economics, and has really created a manufacturing model with improving efficiencies.

Horizontal drilling and hydraulic fracturing were first applied to gas-focused drilling in the Barnett, the Fayetteville, and Haynesville. The same technology was then applied to liquids-focused basins like the Eagle Ford, Bakken, and Permian. The Permian Basin is the focal point of development in the US. The basin encompasses two sub-basins called the Delaware and Midland Basins.


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Opinions and estimates offered constitute Miller/Howard Investments’ judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment, and there can be no assurance that any asset class will provide positive performance over any period of time.

Risk factors to consider when investing in MLPs:
  • Cash distributions are not guaranteed and may fluctuate with the MLP’s operating or business performance.
  • MLPs typically have a general partner that maintains an aggregate 2% general partner interest. Unit holders will have limited voting rights and do not own an interest in, vote with, or control the general partner. The general partner often cannot be removed without its own consent, and the general partner has conflicts of interest and limited fiduciary responsibilities that may permit it to favor its own interests to the detriment of unit holders.
  • The MLP may issue additional common units, diluting existing unit holders’ interests.
  • Unit holders may be required to pay taxes on income from the MLP even if they do not receive cash distributions.
  • The IRS could reclassify the MLP as a taxable entity, which could reduce the cash available for distribution to unit holders.
  • If at any time the general partner owns 85% or more of the issued and outstanding limited partner interests, the general partner will have the right to purchase all of the limited partnership interests not held by the general partner at a price that may be undesirable.

MLP Tax Considerations. The tax treatment for investors in MLPs is different from that of an investment in stock, including: (a) the investor’s share of the MLP's income, deductions, and expenses are reported on Schedule K-1, not Form 1099; (b) because of the possibility of unrelated business taxable income, charitable remainder trusts should not invest in this strategy, and other nontaxable investors (such as ERISA and IRA accounts) should carefully consider whether to invest in this strategy; (c) investors may have to file income tax returns in states in which the MLPs do business; and (d) MLP tax information is sent directly from the partnership, which generally has until April 15th to provide this information. You should discuss these and any other tax implications with your tax advisor.

Past performance does not guarantee future results.

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