Generating income during a period of deleveraging is challenging because both central bank official rates and bond yields can remain low for a considerable period of time. This deprives traditional bond investors from key income streams. U.S. oil and gas production from shale resource development will figure prominently in meeting domestic energy demand. Onshore oil and gas production will continue to rise, increasing the need for infrastructure, such as processing plants and pipelines. Logistics companies, such as midstream MLPs (ALMP), should be well-positioned to benefit from this trend, as volume growth should support revenue and cash flow gains. Within the midstream MLPs, those with a disciplined financial strategy and a proven execution record are best positioned.
Enbridge Energy Partners (NYSE:EEP)
(Outperform, TP $60.00)
- Largest energy MLP, with access to most prolific natural gas, NGL and crude oil plays in US.
- $7.6B of cap ex projects supports 5%-6% distribution growth per year for next several years with 80% revenues expected to be fee-based by '13.
Kinder Morgan Management (NYSE:KMR)
(Outperform, TP $91.58)
- Second largest MLP by market cap
- ~80% fee based with distributions expected to rise 8%+ next few years given organic opportunities
- $15B+ gas pipeline dropdown inventory post acquisition of El Paso by Kinder Morgan (NYSE:KMI)
- KMR is economic equivalent to Kinder Morgan Partners (NYSE:KMP), yet trades at ~8% discount.
Plains All American Pipeline (NYSE:PAA)
(Outperform, TP $97)
- Largest oil transport and storage MLP with presence in most leading oil shale plays and major storage positions at strategic oil pipeline intersections
- Approximately $5B of organic cap ex thru 2015 to serve expected increase in US crude production.
- Distributions to grow high single digits next few years.
DCP Midstream Partners (NYSE:DPM)
(Outperform, TP $50)
- High growth, NGL dropdown play.
- Entering transformative growth period, as it's set to acquire $3b of assets from sponsor.
- These dropdowns along with additional organic growth will create an integrated NGL midstream platform and drive distribution growth to the high-single digits.
Cheniere Energy (NYSEMKT:LNG)
(Outperform, TP $18.00)
- No news is good news
- With major hurdles and several rounds of dilution behind the stock, its' time for focus to return to fundamentals which are as robust as ever.
NuStar Energy (NYSE:NS)
(Outperform, TP $64.00)
- Deep value, turnaround story for this crude oil storage & transport MLP.
- Sowing the seeds for a recovery in distribution growth to the low-single digits.
- Recent increase in organic growth capex is sustainable given the number of low cost, high return project opportunities around its assets.
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