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Pipeline Operators Underwrite E&P Push Among Majors

By: Investor's Business Daily
Posted: 3/5/2014 6:04:00 PM
Referenced Stocks: MMP;ACMP;PSXP;SEP;EQM

A shift in strategy by several of the large integrated oil plays, reported by Bloomberg in February, could point to another growth spurt among independent pipeline operators in the coming year.

Many of those companies are master limited partnerships, a REIT-like business model that avoids corporate taxes by passing operating income through to investors as special distributions.

That broad group masks some of the industry's best advances.Magellan Midstream ( MMP ) gained 70% the past 52 weeks.Access Midstream Partners ( ACMP ) has booked a one-year gain of 48%. AndPhillips 66 Partners ( PSXP ), a new issue in July, is more than 100% past its IPO price.

The three stocks have annualized dividend yields of 3.4%, 3.8% and 1.9%, respectively.

Chevron and Shell are among the heavies announcing they will sell additional pipeline and storage assets, according to Bloomberg, to bankroll more ambitious exploration budgets. The larger players see upstream exploration and production as their core competency, and they need to expand production and reserves to keep shareholders happy.

Most of the group's top-ranked MLPs are thinly traded:Spectra Energy Partners ( SEP ),Phillips ,EQT Midstream Partners ( EQM ) andOiltanking Partners (OILT).

Magellan is not thinly traded and holds a 95 Composite Rating from IBD, putting it in the group's top five stocks. The stock is near new highs and has had multiple touchbacks to support at the 10-week line since climbing out of a flat base in September.

Energy Transfer Equity (ETE) has a lower Composite Rating of 87, but has plenty of liquidity and has strong earnings forecasts for the next two years. The stock is up 12% this year and 62% the past 12 months. Its annualized dividend yield is 3%.

New issues in the group includeValero Energy (VLP) andWestern Gas Equity (WGP).