Tuesday July 27, 2010
by Mark Skousen, editor High-Income Alert
I’ve uncovered another attractive high-income play in the energy patch:
Pioneer Southwest Energy Partners (
PSE).
I like this partnership for several reasons. It has plenty of potential for growth. It has financial flexibility and a low cost of capital.
Based in Irving, Texas, Pioneer is a limited partnership that owns more than 1,100 oil- and gas-producing wells in the Spraberry field in the Permian Basin of West Texas and also in eight counties in the Southeast region of New Mexico.
According to the Energy Information Administration, the Spraberry field is the fifth-largest oil field in the United States and the only large onshore oil field that is growing.
Pioneer is the largest operator in the field, benefiting from both the scale of its operations and its expertise in the area.
It has a stable, predictable cash flow and experienced management, as well as an attractive, 8% yield. And there has been a bit of insider buying lately, too.
Financial metrics also look good. Last quarter, earnings jumped 204% on a 24% increase in revenue. Operating margins top 30%, and management is earning a healthy 25% return on equity.
Because its operations are onshore, it is also immune to the raft of new legislation and regulations that almost certainly will hit the offshore industry.
Add it up and you have an appealing growth opportunity and, as always, a hefty yield. So pick up Pioneer Southwest Energy Partners at $25.75 or better, and place a protective stop at $20.
Learn more about this financial newsletter at Mark Skousen's
High-Income Alert.
