Thursday May 03, 2012
by Genia Turanova, contributing editor The Complete Investor
The two pipeline Master Limited Partnerships in our model portfolio -- Plains All American Pipeline L.P. (PAA) and ONEOK L.P. (OKE) -- have been performing like champs.
The companies have benefited both from their MLP structure and from exemplary execution, letting them capitalize on the frantic search for new energy sources. Both remain buys.
In the four months since we first added Plains All American., it’s up 24 percent, and that’s not counting its hefty dividend. ONEOK L.P.(OKE) has more than doubled since our initial recommendation a little over two years ago, while also paying a 4 percent yield.
Plains All American Pipeline is one of North America’s largest oil and gas transportation and storage companies, with pipelines and storage facilities concentrated in some of the continent’s most important oil-producing areas and transportation corridors.
Most notable is its solid presence within the Mid Continental Corridor, a rail network that connects central Canada and the northern plains with Gulf Coast ports and that’s critical to U.S. energy supply.
It also has access to major oil transportation and storage hubs in Canada and the U.S., making it a strong beneficiary of U.S.-Canada energy trade.
Recently the company announced it was building a new 170-mile pipeline to transport crude oil from the Mississippian Lime formation in northern Oklahoma and southern Kansas, to the Cushing, OK market. The pipeline is scheduled for mid-2013 completion.
Additional growth opportunities will come from accelerating production in the Bakken Shale, Eagle Ford Shale, and Permian Basin.
About 60 percent of the MLP’s cash flow is fee-based, largely insulating it from ups and downs in commodity prices. The conservative balance sheet and experienced management round out the list of positives.
Yielding more than 5 percent after the latest distribution increase, Plains All American remains a buy.
How many public companies do you know of that performed so strongly in recent years that their stock has split? ONEOK L.P. makes that elite list: its shares split 2-for-1 this past July. While Plains All American is leveraged largely to oil, ONEOK focuses on natural gas.
It transports and stores both natural gas and natural gas liquids (NGL), which involves gathering, processing, and fractionating. Because this MLP engages in these “gate-keeping” operations, it has been largely unaffected by low natural gas prices.
Instead, it has profited from the rising volumes of gas being produced and from high volumes and margins in the NGL business.
ONEOK, with its leverage to the Barnett Shale and Permian Basin areas, is one of the best ways to play the explosive growth in U.S. shale activity, and it remains a buy.
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