The Best Way to Buy into Colorado’s Newest Lode
Big news out of Anadarko Petroleum (APC) on November 14. The company announced a huge new reserve in Colorado’s Niobrara shale formation estimated to hold up to 1 billon barrels of recoverable oil.
But the best way to take advantage of that—and the expansion of Anadarko’s increasing oil shale production in general—isn’t to buy Anadarko. The euro debt crisis and fears of a global economic slowdown are likely to keep oil stocks from moving up in the next six months or so.
Instead, I’d look to Western Gas Partners (WES), a master limited partnership set up by Anadarko in 2008 to manage existing gas gathering systems, gas treatment plants, and natural gas and oil pipelines—and to build new ones.
Western Gas Partners will see higher revenue and earnings as it transports the increasing volumes of oil liquids and natural gas being produced by the boom in oil and gas production from shale formations in Wyoming, Utah, Colorado, and Texas.
Unlike Anadarko shares, which pay a dividend yield of just 0.45%, units of Western Gas Partners pay a dividend of 4.4%. I think the units also offer good potential for capital appreciation—as more wells in the areas served by Western Gas Partners plants and pipelines go into production, the partnership will see rising volumes through its system and increasing cash flow.
Credit Suisse projects that EBITDA (earnings before interest payments, taxes, depreciation, and amortization) will climb to $256 million in 2011 and $301 million in 2012, from $186 million in 2010.