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Friday October 28, 2011
MLPs in energy infrastructure
by Roger Conrad, editor The Utility Forecaster Energy infrastructure MLPs Energy Transfer Partners LP (ETP) and NuStar Energy LP (NS) have slipped roughly 25% from 52-week highs. But dividend risk appears negligible. NuStar raised its payout about 3 percent in late July. Energy Transfer’s management, meanwhile, continues to promise a boost later this year. Rather, investors’ primary concern seems to be the pair’s expansion plans, and resulting capital needs. NuStar is in the midst of spending $435 million in 2011 on storage terminals and pipelines serving oil and gas liquids-rich shale areas. Energy Transfer projects second half 2011 capital spending of $630 million to $760 million. Meanwhile, it’s waiting on the results of a vote by Southern Union shareholders on a merger offer from general partner Energy Transfer Equity LP, to be held later this year. If that deal goes through, Energy Transfer will assume the general partner’s 50 percent interest in the Florida Gas Transmission Pipeline system for total consideration of $2 billion. The uncertain prospect of raising that cash is likely to hang over Energy Transfer’s unit price until the deal is done or called off. The upshot is a pair of MLPs with constrained prices near term but little risk to distributions and a lot of upside when market conditions stabilize. I’m cutting targets slightly to reflect near-term drag, but both and remain buys in our Income Portfolio. Energy Transfer Partners is a buy up to 50, while NuStar is a buy up to 65. Learn more about this financial newsletter at Roger Conrad's The Utility Forecaster. 
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