guide to oil and gas mlps
DESCRIPTION
Despite the Federal Reserve's moves to start easing its economic stimulus, interest rates are still at record lows. This means investors continue to have no choice but to look for better yields in the stock market. One place that has really caught investors' attention are oil and gas master limited partnerships, where the top four offer an average distribution yield of 9%. The business of an oil and gas MLP is pretty straightforward. These companies acquire mature oil and gas wells, hedge to lock in the cash flows associated with those wells,Seems like need a bit more explanation of this middle part, but this could be just because I don't know the topic and then return nearly all of the excess cash flow to investors. That said, not all of these companies are that straightforward. This can make it difficult for investors to choose which one would fit best within their portfolio. Some investors might want the security of owning top-dog LINN Energy (NASDAQ: LINE) or its affiliate LinnCo (NASDAQ: LNCO). The acquisition machine now owns an interest in 19,000 producing wells throughout the U.S. Not only that, but thanks to its most recent acquisition, LINN Energy's production is quite balanced and its distribution is now rock solid. Still, other investors are more interested in upside that can be offered by smaller operations like BreitBurn Energy Partners (NASDAQ: BBEP), Vanguard Natural Resources (NASDAQ: VNR) , or EV Energy Partners (NASDAQ: EVEP). However, while all three are relatively the same size, there are major differences between each company. For example, BreitBurn Energy Partners' production is heavy on oil, while Vanguard Natural Resources and EV Energy Partners lean heavily toward natural gas. These are just some of the differences between these top four companies. To take an even deeper look I've created the slideshow below to help investors decide which of these massive distributions belong in their portfolio.TRANSCRIPT
An Investor’s Guide to Oil & Gas MLPs (Part I)
Photo credit: LINN Energy
Part I Will Look Closer at the Top 4
• Represent ~75% segment’s value
• Most aggressive acquirers• Geographically diverse• Secure and growing
distributions
LINN Energy LLC and LinnCo LLC
• $7.8 billion market cap
• 8.8% yield• Coverage ratio last
quarter: 1.0x• Distribution paid
monthly
Ticker: LINE/LNCO(All data LINE)
Photo credit: LINN Energy
Part I Will Look Closer at the Top 4
Source: LINN Energy Investor Presentation
The Information that Matters
• Total Proved Reserves: 1.1 Billion BOE• Liquids production: 54%• Reserve life-index: ~17 years• General Partner: None• Areas to watch: Recently completed Berry
Petroleum acquisition, natural gas prices and the Permian Basin development
BreitBurn Energy Partners L.P.
• $2.4 Billion market cap
• 9.6% yield• Coverage ratio last
quarter: 1.3x• Distribution paid
monthly
Ticker: BBEP
Photo credit: Flickr/Robert Ashworth
Part I Will Look Closer at the Top 4
Source: BreitBurn Energy Investor Presentation
The Information that Matters
• Total Proved Reserves: 190.8 million BOE• Liquids production: 62%• Reserve life-index: ~15 years• General Partner: None• Areas to watch: Oil prices and debt levels
Vanguard Natural Resources, LLC
• $2.4 billion market cap
• 8.3% yield• Coverage ratio last
quarter: 1.09x• Distribution paid
monthly
Ticker: VNR
Photo credit: Flickr/USFWS Mountain Prairie
Part I Will Look Closer at the Top 4
Source: Vanguard Investor Presentation
The Information that Matters
• Total Proved Reserves: 316 million BOE• Liquids production: 33%• Reserve life index: ~13 years• General Partner: None• Areas to watch: Natural gas prices and strategy
shift organically grow production
EV Energy Partners, L.P.
• $1.9 billion market cap
• 8.6% yield• Coverage ratio last
quarter: 0.7x• Distribution paid
quarterly
Ticker: EVEP
Photo credit: Flickr/Daniel X. O’Neil
Part I Will Look Closer at the Top 4
Source: EV Energy Investor Presentation
The Information that Matters
• Total Proved Reserves: 160.5 million BOE/d• Liquids production: 31%• Reserve life index: ~14 years• General Partner: EnerVest• Areas to watch: Utica Shale and natural gas
prices, distribution coverage ratio and midstream growth
Now Let’s See How Each Compares
• Scale• Reserves• Production• Hedging
Enterprise Value
Total Proved Reserves
Sources: Company investor presentations, SEC filings and author’s calculations
Where is the Cash Flowing From?
Sources: Company investor presentations, SEC filings and author’s calculations
How Secure is the Cash Flow?
Sources: Company investor presentations, SEC filings and author’s calculations
How Secure is the Cash Flow?
Sources: Company investor presentations, SEC filings and author’s calculations
Key Takeaways
LINN Energy – Top-dog, balanced production and very secure cash flowsBreitBurn – Oil heavy with less secure cash flowVanguard – Natural gas focused with secure gas cash flowEV Energy – Natural gas heavy with less secure cash flow
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