Canadians are Outflanked by US Pipelines in the Transport of Oil Sands Sourced Petroleum to the Gulf Coast: Which Stocks will Benefit?

Wall Street Transcript

67 WALL STREET, New York - April 14, 2014 - The Wall Street Transcript has just published its Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Dividend-Paying Stocks - Capital Appreciation - Small Cap Investing - Upside in Small-Cap Stocks - Investing Through Construction Trends - Dividend-Paying Small Caps - MLP Investing - Global Macro Trends

Companies include: Plains All American Pipeline L (PAA), MarkWest Energy Partners LP (MWE), Sunoco Logistics Partners LP (SXL), Targa Resources Partners LP (NGLS), Enterprise Products Partners L (EPD), Magellan Midstream Partners LP (MMP), ConocoPhillips (COP), Enbridge Energy Partners LP (EEP), Crosstex Energy LP (XTEX), Buckeye Partners LP (BPL), Devon Energy Corporation (DVN), El Paso Pipeline Partners, L.P (EPB) and many others.

In the following excerpt from the Investing Strategies Report, an experienced MLP investor and portfolio manager discusses his methodology and top picks for investors:

TWST: Any regulatory issues on the horizon that concern you? How might the environmental battle being fought over the Keystone Pipeline, for example, impact investments down the road?

Mr. Chisholm: The Keystone Pipeline has been a very interesting thing to monitor. You have two issues with the Keystone Pipeline. Number one, people do not like the crude oil that it is transporting. It is Canadian tar sands crude oil that is essentially mined out of the ground, and people view this as a very dirty source of crude oil, and environmentalists are not too keen on the process and they wanted to see that pipeline stopped because they did not want those barrels of crude oil to hit the Gulf Coast.

And then the second issue of the Keystone was the path that was laid out went through the Sandhills of Nebraska. So essentially they were able to use the Sandhills as an obstacle for building the pipeline, and what's interesting is it set in motion a number of factors that actually led to those barrels hitting the Gulf Coast faster than they ever would have had the Keystone been allowed to be built. And what I mean by that was shortly after they delayed the Keystone, ConocoPhillips (COP) sold their 50% ownership in the Seaway Pipeline to Enbridge (EEP), and Enbridge and their 50% ownership in Enterprise Products Partners converted or changed the direction of that line which was historically south to north to north to south, and they started shipping those barrels from Cushing to the Gulf Coast in the summer of 2013. So essentially delaying Keystone set into motion a number of factors that actually enabled those Canadian oil sand barrels into the Gulf Coast faster.

Now I think that that was unique in terms of regulatory matters to Keystone but moving forward, any pipelines or expansions or anything that has to do with moving the Canadian oil sands perhaps will undergo some federal scrutiny. However, we're seeing the majority of the supply growth here is with light sweet crude out of the Bakken and the Eagle Ford, so I don't think that those regulatory issues had a large impact on our investments.

I think where we have regulatory risk is obviously in the hydraulic fracturing process. That technology is leading to the supply growth, and if there were any regulatory issues that would prohibit or restrict use of the hydraulic fracturing process then that would impact the supply growth that we're seeing, and that would impact the hydrocarbons or the supply levels being transported on these pipelines, and that would impact our growth rates. So that is an area that from a regulatory standpoint we do have risk.

We've only really seen it banned in New York; however, there have been conversations in Colorado as such, although it's not gotten very far. Hydraulic fracturing is nothing new; George Mitchell began this some 30 years ago. Essentially the process was honed and refined in the Barnett Shale here in North Texas, and that drilling occurred underneath one of the largest aquifers in the State of Texas and there have been no allegations of contamination or any environmental impacts regarding that. So again, we'll watch it closely. We don't see any impending regulatory actions that would ban hydraulic fracturing, if you will.

TWST: What would you say was your best investment decision in recent memory?

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