Breitburn Energy Partners L.P. (BBEP) - Too exposed to Oil & Gas exploration
NuStar GP Holdings, LLC (NYSE: NSH) - Terminal & storage facilities not too exposed to commodity prices
ONEOK Inc. (OKE) -NYSE - Parent and GP of OKS good exposure to NG gathering less debt Also has pipeline and distribution operations
ONEOK Partners, L.P. (OKS) -NYSE - MLP good exposure to NG gathering & storage holds most of the debt. Also owns and operates interstate & intrastate pipeline.
I was under the impression that BBEP had exposure to NG gathering facilities but was wrong. With their recent proposed purchase $860 mln purchase from Whiting Petroleum (an increase of EV by 37% financed mostly w/ new debt), you own a pretty leverage E&O operation w/ EBITDA generated from significant hedging in the out years. Many of those hedges come off in 2015 and if they can not roll them over at higher amounts, there could be cash flow problems that could result in reduced distributions and/or increased unit share offerings resulting in unit dilution.
As a result, I closed out my entire position of Breitburn Energy Partners L.P. (BBEP) Friday to avoid this potential risk primarily due to (1) their exposure to future commodity prices (ie lower Oil and/or NG prices, (2) their increased debt profile and (3) the uncertainty of their future well depletion (rates) from current producing wells especially in the out years past 2015 when hedges need to be rolled over.
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I recall that your original observation was one that focused on those MLP's that had little or no exposure to commodity price(s) but rather generated their revenue streams from "fee based" earnings (ie. Ng gathering facilities, pipelines, distribution and storage). Therefore, it is these types of "infrastructure" assets I want to own as I believe the future revenue streams are predictable and as the demand for the resource grows (ie NG and NG liquids), the capacity utilization (and opportunity for expansion) will grow too.
NuStar GP Holdings, LLC (NYSE: NSH) and ONEOK Inc. (OKE) are two companies that meet these objectives. I have been accumulating shares in ONEOK Partners, L.P. (OKS) as I believe they have the best collection of integrated "infrastructure" assets to service the growing NG industry.
Here is a link to their most recent presentation (June 2013)
The question for me, is when does this name come into significant value range and is this the company I want to build up a core position in. With a forward PE at 19, it is beginning to look attractive (especially w/ their mix of high value NG gathering assets). Other names in the industry include SEP (PE 24 for storage & distribution), CNP (PE 18 for storage & distribution), GAS (PE 17 for storage & distribution), MWE (PE 27 NG for NG gathering, storage & processing, distribution), KMP (PE 29 for NG gathering, storage & processing, transportation, distribution), APL (17 for NG gathering, processing and transportation; in value territory too!), ATO (15.31 for distribution, transmission & storage) and DPM (23 for NG gathering, transportation & storage).
Below are some high lights to their operation(s):
My plan is to build up my OKS position to 3% of the portfolio. Currently it represents 1.22% of the taxable portfolio. Other stocks w/ similar "NG infrastructure" assets that I own include: EPB (1.73%), WMB (1.36%), GAS (1.07%), APL (0.96%), EPB (0.91%), TCP (0.82%), KMP (0.72%), ATO (0.68%), MDU (0.66%) and DPM (0.47%). This group reflects 10.6% of the taxable portfolio so far.
I will probably be selling out of the utilities that have NG storage and distribution exposure (those w/ div below 4% and PE's at the high end of average) and moving those proceeds into companies that own the NG gathering assets like OKS and APL. DPM is one I like a lot but it has been trading at the high end so I recently cut my position in half and moved the proceeds into OKS.
The main consideration for me is that most if not all the income generated from these companies are fee based. Some of the companies have regulated business operations that further help maintain stability in their cash flow. I am just not too sure how much pricing pressure these companies will have in the future as rates begin to rise in the next 3-5 years and if capital constraints will become an issue to obtain future growth. At least according to the recent OKS analyst report, future growth is not constrained by capital costs but could be if rates rise too high too fast (which I believe will not happen).
EKS |
