Some producers are concerned that the new U.S. upstream master limited partnerships (MLPs) will ruin the domestic business, that more and more assets will go into harvest mode and not see reinvestment. If these assets go back on the market years from now for exploration companies to take another whack at them, there may be fewer explorationists in the industry and even fewer able to figure out how to crack the code on surfacing the balance of the remaining reserves.

Yet, there are many more producers-and investors-excited about the emergence of the new U.S. E&P MLPs. They're excited about prices they can get for properties they will sell to them, and they're busy considering their own portfolios for assets they can spin out as MLPs, selling shares into the public market.

Some are changing their existing business plan to explore less and develop more-to focus on turning their proved undeveloped (PUD) reserves into proved developed producing (PDP), and are paying less attention to probable reserves right now.

"I want to create an asset package an MLP will buy," says the chief executive of a Texas-focused producer. One problem: this operator's focus is the exploration-oriented East Texas Bossier and Austin Chalk. Neither of these types of assets are the kind the MLPs are seeking. These assets involve exploration; MLPs seek production. They are "P" companies, rather than E&P companies.

Upstream MLPs and their LLC cousins that are already trading are Linn Energy LLC, Atlas Energy Resources LLC, EV Energy Partners, BreitBurn Energy Partners, Legacy Reserves LP and Constellation Energy Partners. Linn went public first-in January 2006.

Having filed an S-1 to IPO an MLP are Encore Acquisition Co., Exco Resources Inc. and Vanguard Natural Resources LLC.

Producers that have announced plans to take an MLP public, but have not filed an S-1 yet, include XTO Energy Inc., Quest Resource Corp., Pioneer Natural Resources (it plans two MLPs) and Plains Exploration & Production Co.

Operators that have suggested they may create an MLP include Whiting Petroleum Corp. and privately held Quantum Resources Management LLC.

Having formed an MLP but not offered it to public trading is Abraxas Petroleum Corp.

And, N-1s have been filed to IPO closed-end funds that will invest in MLPs, including upstream MLPs: The Cushing MLP Total Return Fund by Dallas-based Swank Energy Income Advisors LP, and MLP Strategy Income Fund Inc. by New York-based IQ Investment Advisors LLC, an indirect subsidiary of Merrill Lynch & Co. Inc.

Other MLP investment funds include Lehman Brothers MLP Opportunity Fund LP and Hartz Capital MLP LLC.

Companies that have assets that are suited to an MLP spin-out include Range Resources Corp., Chesapeake Energy Corp., Ultra Petroleum Corp., Southwestern Energy Corp. and Devon Energy Corp. (E&P company Quicksilver Resources plans an MLP but it is for some of its Barnett shale midstream assets.)

Are the E&P MLPs pushing up prices for U.S. oil and gas reserves? "Before the Atlas deal, I would have said, 'Not much, if at all,'" says one producer. The deal is Pittsburgh-based Atlas Energy Resources LLC's planned cash acquisition of DTE Gas & Oil Co. for $1.23 billion. DTE's Antrim shale assets in Michigan have proved reserves of 613 billion equivalent (100% gas; 74% PDP). A traditional PV-10 valuation would have priced the assets at under $1 billion.

In "NewsWell" in this issue, Logan Magruder, president and chief operating officer of Denver-based Quantum Resources Management LLC, says it is difficult for traditional E&P companies like Quantum to win assets when bidding with MLPs. In the company's first nine months, it has won five asset packages in negotiated transactions, lost five to MLPs and lost 13 to traditional E&P companies.

Another producer, who is forming an MLP, says, "You almost have to become an MLP to compete." It was nearly two decades before Canada hosted a few dozen energy trusts-the tax-advantaged equivalent to the U.S. MLP. The U.S. may have as many MLPs in under three years.