4 Prime Pipeline MLPs

03/02/2012 9:45 am EST


Richard Lehmann

Publisher, Forbes/Lehmann Income Securities Investor

Regardless of energy prices, and whether for oil or natural gas, pipeline companies make their money by shipping whatever it is that needs to go from point A to point B. And a recovering economy means even busier pipelines than before, writes Richard Lehmann of Income Securities Investor.

Energy Transfer Partners (ETP)
This is a publicly traded master limited partnership with a market capitalization of about $10 billion. They own and operate a diversified portfolio of energy assets that includes approximately 17,500 miles of natural gas gathering and transportation pipelines, three storage facilities, three processing plants, 17 treating facilities, and ten conditioning plants.

The partnership is the fourth-largest retail marketer of propane in the United States, serving more than 1 million customers from 440 customer service locations in 41 states. ETP also holds a 70% interest in Lone Star NGL LLC, a joint venture that owns and operates natural-gas liquids storage, fractionation, and transportation assets in Texas, Louisiana, and Mississippi.

Third-quarter 2011 revenue was $1.72 billion, and net income was reported at $66.8 million. For the same period, 2010 revenue was $1.69 billion and posted net income was $247.2 million. This tax-advantaged security would be another good investment for a medium-risk growth and income portfolio. Buy up to $52.

Kinder Morgan Partners (KMP)
Kinder Morgan's (KMI) companies have an enterprise value of about $65 billion, and include Kinder Morgan, Kinder Morgan Energy Partners, and Kinder Morgan Management (KMR).

Almost all of the Company’s assets are owned by the partnership (KMP), one of the largest publicly traded pipeline master limited partnerships, as well as one of the largest pipeline transportation and energy storage companies in North America, with more than 38,000 miles of pipelines and approximately 185 terminals.

Their pipelines transport natural gas, refined petroleum products, crude oil, carbon dioxide (CO2), and more. They also store or handle a variety of products and materials, such as gasoline, jet fuel, ethanol, coal, petroleum coke, and steel.

Kinder Morgan has agreed to buy El Paso, which will give them a total of 67,000 miles of gas pipelines. This purchase is still awaiting government approval. If approved, KMI will sell (drop down) all of EP’s natural gas pipeline assets to KMP and El Paso Pipeline Partners (EPB) over the next few years.

Fourth-quarter and full-year 2011 revenues were $2 billion and $8.21 billion, and net income was $475 million and $1.26 billion. For the same periods in 2010, revenues were $1.93 billion and $8.08 billion and net income was $413 million and $1.32 billion.

This conservative security is ideal for a low to medium-risk growth and income portfolio. Buy at or below $89.

ONEOK Partners (OKS)
This large, publicly traded master limited partnership is a leader in the gathering, processing, storage, and transportation of natural gas, primarily in the upper Midwest and Mid-Continent regions of the US.

They also own one of the nation’s major natural gas liquids (NGL) systems, which is able to take raw NGLs from Mid-Continent and Rocky Mountain regions and create value by fractionating it into individual components such as ethane, propane, normal butane, isobutane, and natural gasoline. The partnership’s general partner is ONEOK (OKE), a diversified energy company, which owns 42.8% of the overall partnership interest.

Third-quarter 2011 revenue was $2.9 billion, well above the $2.5 billion reported the previous year. Net income for the same periods was $209.7 and $150.9 million.

This investment grade partnership would fit well in a low to medium-risk growth and income portfolio. Buy at or below $59.

Plains All American Pipeline (PAA)
This is a publicly traded master limited partnership (“MLP”) engaged in the transportation, storage, terminalling, and marketing of crude oil, refined products, and LPG (liquefied petroleum gas and other natural gas related petroleum products).

The partnership handles over 3 million barrels per day of crude oil, refined products, and LPG through their 16,000 miles of gathering and mainline crude oil pipelines, truck fleet, and barges in the US and Canada. They are also engaged in the development and operation of natural gas storage facilities, and have two fractionation plants, one in each country.

Revenue for the third quarter of 2011 increased to $8.84 billion, from $6.4 billion for the same period in 2010. Net income also increased to $281 million, from $81 million, and operating margin increased to 4.04%.

These units (shares) are best suited for low to medium-risk portfolios. Buy at or below $79.00.

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