3 Hidden Treasure Chests of the Next Energy Revolution
By Stephan Dube | More Articles | Save For Later
October 22, 2013 | Comments (0)
My last article discussed three blue-chip MLPs that should profit from the new opportunities provided by the next energy boom. As a matter of fact, unconventional oil from shale formations is rapidly becoming an important and abundant resource in the U.S. About 25.3 billion barrels of tight oil are expected to be produced cumulatively from 2012 through 2040, which makes this unconventional resource account for about 33% of total U.S. oil production.
Notably, a fast rise in shale oil production would have a dramatic effects on pricing, as the shale gas revolution taught us. As a result, E&P companies would need to reassess their entire asset portfolios and carefully review their business models, forcing them to sell maturing assets earlier than expected to midstream companies. The objective would be to get back a certain return on investment and reallocate capital elsewhere.
According to the Energy Information Administration, the increase in U.S. supply is resulting in the drop of net imports of petroleum and other liquids, which supports lower oil prices, as shown in the chart below.
Source: EIA Annual Energy Outlook 2013.
Therefore, I found three underrated MLPs that would profit from that context, given the assets already in place. These MLPs are set for a substantial boost in growth, since mature asset acquisitions should occur more in the next few years, generating large cash flows. Let's take a look at these three hidden treasure chests.
The three hidden MLP treasure chests
Source: NuStar map of operations, NuStar Energy.
My first MLP is one of the largest independent liquids terminal and pipeline operators in the U.S. It also owns and operates midstream assets in Canada, Mexico, the Caribbean, the Netherlands, the U.K., and Turkey. NuStar Energy (NYSE: NS ) has 8,573 miles of pipeline and 87 terminal storage facilities
My first MLP is one of the largest independent liquids terminal and pipeline operators in the U.S. It also owns and operates midstream assets in Canada, Mexico, the Caribbean, the Netherlands, the U.K., and Turkey. NuStar Energy (NYSE: NS ) has 8,573 miles of pipeline and 87 terminal storage facilities, with approximately 97 Mmbbls of capacity.
NuStar also transports refined products from Valero Energy's refineries to its terminals for mid-continent distribution. The company's revenue comes from two separate activities, the pipeline and the storage segments. Between 2006 and 2013, fee-based EBITDA increased approximately $225 million. Its steady growth is no stranger to its presence in unconventional resources such as the Eagle Ford shale.