Thanks so much. I am going to look into it. Sounds like just what I am interested in-a smaller company that is in a growth cycle. I am quite willing to be a patient buy and hold investor. They say that style is over, but I doubt that's true. You're a good guy.
For what it is worth...
I established a position in EPB today (1/2); tomorrow, after pricing of their secondary is announced, I will buy other 1/2. EPB owns FERC regulated interstate NG pipelines (very boring). However, EPB is fairly new and is growing cash flow and distributions at a rate of 8 to 10% per year. EPB also has a strong GP to "drop down" low risk assets.
EPB is a lower risk offset to higher risk G & P's like NGLS; I hope NGLS at least doubles over the next two years.
I hope EPB increases in unit price as yield spreads continue to narrow, and as EPB increases distributions (hopefully at 8 to 10% per year); the increase in unit price in 2009 and 2010 could be 15 to 20%.
Sorry, I may not be much help here. Most of my MLP dollars are invested in larger established companies, most of which have investment grade rated debt.
However, NGLS is one of the newer and smaller MLP's; in addition, its business model has more upside (and more downside) than interstate and/or intrastate pipeline companies transporting and/or storing natural gas, crude oil and related products. NGLS is a gatherer and processor; good management decisions along with a strong energy business could result in above average returns. In general, the G & P's are smaller and newer than the pipeline companies.
For reasons somewhat similar to those decribed by you (looking for newer/smaller MLP's), I have chosen the G & P group for my "risk" dollars. I own MWE, CPNO, and NGLS in this group.
I also own WPZ, which is a G & P, but is larger than the others and has investment grade rated debt. WPZ has had a great run, but probably has less upside (and less downside) from here compared to the other G & P's. The only other significant factor impacting WPZ is WPZ's determination not to hedge NG and NGL volumes to minimize risk; the other G & P's hedge (I like the fact that WPZ does not hedge, it helps me diversify). This has resulted in WPZ being impacted to a greated degree during Q4 2008 and Q1 2009. However, WPZ will benefit to a greater degree compared to other G & P's if commodity prices rise.
Do you have a feel for an up and coming pipeline MLP? Not one of the well known big boys, but a smaller one with good growth prospects. I am getting at the theme of how it's harder for a large company to have incremental growth affect the bottom line, and in the case of MLP's, distributions. On the other hand smaller companies' bottom lines and hence distributions are affected greatly by growth. I would like to do some DD on such companies.
Thanks for the reply. I have owned WPZ because Mark Easterbrook (MLP pipeline analyst with RBC) had rated WPZ as his top pick. After the recent price move by WPZ, he now rates WPZ as Outperform (compared to other MLP's). His premiss has been that having no hedges hurt WPZ on the way down (Q4 2008 and Q1 2009) but having no hedges will benefit WPZ the next few quarters. We will see.
I do not know anything about RGNC. Can you provide any color? I may move some funds from WPZ to RGNC.
Is RGNC a "Gatherer and Processor"?
Where are their primary assets?
To me WPZ is one of the worstt run large G&P's whose mgt has failed to deliver upside in good times and WMB its parent saved them in bad times as it failed to hedge. Given low yield and mgts past performance to me its not worth an investment. I own NGLS, CPNO & RGNC instead.
I purchased units in MWE today at about $18.50. We will see what happens over the next year or so.
Their equity offering encouraged me that MWE is well on their way to dealing with their liquidity issues and the unit price decrease helped to create a buy point.
I remain long NGLS, WPZ, and CPNO (other gatherers and processors).
Sooner, I appreciate your point of view. It certainly made me feel more comfortable with my investment in MLP's. I imagine most folks are quite pleased with the price movement the last few days, although I kind of wish it would have been more gradual since I'm still buying for the long term.
Best to you.
"Do you have certain criteria that you use to judge an energy company's longterm investment worth?"
Well, mostly by "feel". I worked 5 years as a public accountant, followed by 25 years as a financial and corporate executive in energy companies. The companies kind enough to employ me are in the E & P, contract drilling and oilfield service sectors of the industry. Today, I have small business interests in Okla City and Anchorage, as well as investments (currently, primarily in MLP's).
My experience has provided me with some understanding of the basic business models in the energy field. (Perhaps enough to be dangerous, but one proceeds to the best of his or her ability).
In my MLP investments, my primary goal is to generate income (for me and my family to spend at the "grocery store"). I try to invest in a manner that will increase cash flow to me at a rate in excess of inflation. Accordingly, I invest most of my funds in perceived lower risk (but growing, even if growing slowly) pipeline MLP's. I also allocate about 20% to higher risk, but potentially higher return MLP's (currently, this is in the "gathering and processing" segment). I suspect, my investments in the G & P segment will decrease in late 2010 or 2011 (timing just a guess).
Thank you, Sooner.
Your explanation is very helpful for me to get a sense of the natural gas industry.
It sounds as though you're trying to spread the risk around yet keep a good yield.
Do you have certain criteria that you use to judge an energy company's longterm investment worth?
Thanks again for your thoughtful response.