3 Oil And Gas Stocks With Greater Than 8% Dividend Yield Worth A Closer Look

 |  Includes: BBEPQ, CMLP, SDRL
by: Black Coral Research

2012 was a good year for offshore discoveries and the same will help to carry on the momentum going forward. Another good thing has been that the discoveries were not only concentrated in the already established offshore regions such as West Africa and the Gulf of Mexico but also in areas with previously limited offshore development presence, including India, Australia and Turkey. This will help increase the demand for offshore drilling rigs and will eventually push the day rates up. Overall it will be good for the companies in this sector and for the stakeholders related to them.

Let's take a look at the performance of three stocks in the sector, and how they will fare in the future. These three stocks have been chosen from an investor's point of view. All three have 5 year average sales growth rates greater than 25% and dividend yield greater than 8%.

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*as of 4/9/2013

Source: Yahoo Finance and FinViz

BreitBurn Energy Partners LP (BBEP) is an oil and gas E&P company buying proved producing properties, which have further potential for development. The company deals in acquisition, exploitation and development of oil and gas properties in the U.S. Its reserves distribution has grown from 35% to 50% since last year with much of it coming from the acquisition of over $600 million in new, "oily" properties in 2012. It's a good strategy, as oil prices have held up much better than U.S. natural gas prices in the last few years.

From an investor's point of view, BBEP has performed fairly well considering a consistent growth in dividend. Dividend/Distribution by the company has risen for 10 consecutive quarters, with 4Q12 making it 11 straight quarters with a raise to $0.470. BBEP's coverage ratio for 2012 was healthy at 1.18x, which is in line with the industry average of 1.1x to 1.2x. For the full year, the company's production rose to 8.32 million BOE (barrel of oil equivalent), while for the fourth quarter production grew 11% compared to Q1 of 2012.

For fiscal 2013, BBEP expects growth to continue with total production between 9.5 BOE and 10.1 BOE. The company is expecting an adjusted EBITDA of $330 to $340 million for 2013, which are conservative estimates as they don't consider acquisitions. BBEP is targeting at least $500 million in acquisitions and is expected to have an active drilling program for its own fields.

Seadrill (NYSE:SDRL) is an offshore deep water drilling company operating in 15 countries and five continents. The company's portfolio is highly diversified internationally, with rigs operating in all major offshore locations. Seadrill is the second largest offshore drilling company in the world with a market cap of around $17.46 billion. It currently owns and operates a fleet of 73 offshore drilling rigs, but the number is expected to go down after an upcoming deal with SapuraKencana. Despite this, the company has seen significant growth considering it only had five rigs in 2005.

To gain from the rising demand for offshore drilling rigs, Seadrill has resorted to an aggressive newbuilding program. The program includes an impressive array of ultra-deepwater, jack-up and tender rigs that are expected to boost the company's presence in every offshore environment. It is expected that about 25 new rigs will come online for the company through 2015. These newbuilds will be the primary source of growth going forward for the company, and will ensure steadily growing cash flows over the next two to three years.

Since 2005, EBITDA for the company has risen by a 43% compound annual rate; the company's forward growth is expected to be a continuation of its strong historical growth backed by the large number of newbuilds under construction. Until 2016, the company expects EBITDA to grow at an 11% compound annual rate. Though the number is no match to its historical growth, it is still respectable. Seadrill has a strong history of raising its dividend as its cash flow grows and has three years of consistent dividend increases.

Crestwood (NYSE:CMLP) is a Texas-based midstream master limited partnership. The company mainly owns and operates fee-based gathering, processing, treating and compression assets servicing natural gas producers. Crestwood Midstream Partners has recently announced the pricing of its public offering of 4,500,000 common units representing limited partner interests at $23.90 per unit. The net proceeds from the offering are expected to be utilized for reducing the outstanding debt under its revolving credit facility, the Crestwood Marcellus Midstream LLC revolving credit facility and for general partnership purposes. The offerings will help the company make its balance sheet look more attractive.

For the fourth quarter of 2012, Crestwood reported a profit of $4.86 million compared to $12.34 million in the comparable quarter last year. Operating revenues for the company stood at $56.99 million, down from $59.29 million last year. For 2013, the company expects adjusted EBITDA in a range of $170 million to $185 million, which is 50% more than 2012. The main factors driving the company's growth are the consolidation of 100% of CMM, continued volume growth in the Marcellus region and the full year impact of the West Johnson County assets and Enerven operations acquired in August 2012 and December 2012, respectively.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Black Coral Research is a team of writers who provide unique perspective to help inspire investors. This article was written Aman Jain, one of our Senior Analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.