How many more master limited partnerships (MLPs) can the market absorb? The opportunity may be almost unlimited, according to observers at the IPAA's annual Oil & Gas Investment Symposium in New York.

Market sentiment was highly positive after Pioneer Natural Resources announced its intent to file with the SEC by year-end to form two new MLPs. The stock rose 9% on the news. Pioneer will build a $250-million MLP this year around its long-life oil, gas and liquids production in West Texas' Spraberry Trend.

The second MLP will incorporate coalbed-methane production from the Raton Basin in southern Colorado. Pioneer will be the general partner and hold majority ownership in each MLP.

In the Spraberry, the company plans to drill 300 to 350 wells this year and 400 in 2008. In the Raton, it expects to drill 250 to 300 wells this year.

"The resource play is a very good fit with a yield-oriented vehicle," said Garry Tanner, chief operating officer for Enerplus Resources Fund, Calgary, an energy income trust. "We see a lot of advantages to staying in the yield-oriented space" and not converting back to a corporation.

Since last fall, when the Canadian government decided to begin taxing business and energy trusts, investors have speculated that some of the energy trusts would abandon that format and convert back to the traditional C-corp business format.

A challenge for MLPs is that as they produce and deplete their reserves, they have to add reserves by acquisitions. The temptation grows to buy something with a shorter reserve life that produces quick cash flow-in order to maintain distributions promised to unit-holders-said one skeptical investor. "Eventually you are tempted to lower your overall R/P ratio. Once you do that, the MLP is threatened."

Meanwhile, oil and gas MLPs have done so well that they may be in for some profit-taking this year, according to analyst Yves Siegel of Wachovia Capital Markets LLC. "As a group, they have returned 38% year-to-date versus 17% for the Wachovia MLP Index and 4% for the S&P 500."