Investing in Oil and Gas Infrastructure for Yield: Obama Victory Stock Picks

Wall Street Transcript

67 WALL STREET, New York - November 7, 2012 - The Wall Street Transcript has recently re-published its Investing Strategies Report offering a timely review for serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Emerging Markets - Investing in China - Natural Resources - Emerging Middle Class

Companies include: Southern Company (SO) and many others.

In the following excerpt from the Investing Strategies Report, an experienced portfolio manager discusses his current market focus for investors:

TWST: Would you tell us more about the technology behind the MLPs?

Mr. Cameron: The United States' pipeline mileage covers most of the U.S., and more pipelines are being built to new areas of oil and gas production in Texas, the Dakotas and the Appalachian Mountains.

Current hydraulic fracturing, or "fracking" as it has come to be called, has taken a lot of guesswork out of the drilling process and made it more accurate and efficient than ever before. New technology allows companies to pinpoint the depth of shale formations. Then, crews pump pressurized water, sand and chemicals to the formations to open up fractures and get the oil or gas to the surface. With these improved technologies, companies can drill with equipment that allows for fracking in both vertical and horizontal directions, making the drilling more efficient than simply just going down straight, and at the bottom, hoping that we're going to get oil or natural gas. Now, oil and gas are routinely found using this technology.

Since major drilling for oil and gas are mainly in Texas, the Dakotas and the Appalachian Mountains, we need thousands of miles of new pipelines to connect with existing pipelines that then will deliver oil and gas to the end-user destinations. I believe that building these pipelines will require hundreds of thousands of workers from fabrication to installation, as well as to support the needs of these workers with housing, food and other necessities. We believe building the U.S. toward energy independence is going to provide a very strong boost to the U.S. economy. In our view, investing in that effort is good on many levels.

In the U.S., the production of natural gas has rapidly become so gigantic compared to what it used to be when we had just years of known supply of natural gas. We now have more than 100 years of known natural gas reserves. As a result of that, the price of natural gas per million Btu has gone down from about $13 in summer 2008 to the current $3. At one point, a few months ago, it went down to about $1.80 because there was so much natural gas being produced by the system. Now, the price has gone back up. So it's now above $3 per million Btu. I believe it will continue to go even higher.

TWST: How does that translate into making MLPs a good investment?

Mr. Cameron: Financing the growth of MLPs has become a major new profit area for Wall Street's investment banks. Since the U.S. government and the Federal Reserve have forced down interest rates through selling U.S. Treasuries at rates for 10-year Treasuries under 1.5%, this has helped reduce the rates that MLPs now pay to raise capital. That has led to many of the MLPs to predict increasing the growth of their annual payouts.

Today, the MLPs in the Alerian are yielding an average of about 6%, so many clients have been purchasing units of the MLPs rather than common stocks. The yield on the S&P 500 is now 2.1%, while 10-year U.S. Treasuries now yield less than 1.5%. I think that major NYSE-listed MLPs will continue to attract more investors.

It is my belief that the U.S. can now rapidly move toward energy independence with shale-fracking growth, which should result in potentially keeping billions of dollars here in the U.S., while lessening our demand for foreign imports.

TWST: Are we going to see other companies in the oil and gas sector following the lead of the chemical companies and coming to the U.S.?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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