If any sector has taken a beating since the beginning of the year, it is the energy master limited partnerships (MLPs), and there is really no good explanation as to why. The Alerian index that tracks the sector is down over 14%, despite the fact that oil has remained above the $60 level. With OPEC compliance on the production cuts expected to remain at current levels, there is a chance for a price increase this year near $70 a barrel.
A new report from Baird notes the sizable OPEC cuts and also points to huge demand from Mexico, which has jumped dramatically over the past two years. The report said this in regards to that demand:
Mexico is now importing ~600 million barrels per day of gasoline, nearly double that of early 2016. Imports of middle distillates are averaging ~250 Mbpd, similarly doubling those of early 2016. Over 80% of Mexico’s gasoline imports and over 90% of middle distillate imports are from the U.S.
The Baird team has extensive coverage of the MLPs. We screened their coverage universe and found five that look very attractive now for total return investors looking for growth and income. All are rated Outperform at Baird.
This company rounds out the top five picks at Credit Suisse. Antero Midstream Partners L.P. (NYSE: AM) owns, operates and develops midstream energy assets. Its assets include 8-inch, 12-inch, 16-inch and 20-inch high and low pressure gathering pipelines and compressor stations that collect natural gas and oil and condensate from wells in the Marcellus Shale in West Virginia and the Utica Shale in Ohio, as well as water handling and treatment assets.
The company’s Marcellus and Utica Shale gathering systems comprised 182 miles and 110 miles of pipelines, and the water handling systems include 184 miles and 75 miles of pipelines.
The provider of water and other services for fracking operations is 62% owned by oil and gas exploration company Antero Resources. Antero Midstream operates its parent’s pipelines and compressor stations and is expanding its presence among fracking operations. It operates mostly in the southwestern core of the Marcellus Shale field in northwest West Virginia and the core of the Utica Shale field in southern Ohio. More importantly, as a supplier/distributor, it’s shielded in large part from the volatility involved with the natural gas extraction business.
Antero Midstream investors are paid a 5.35% distribution. The Baird price target for the shares is $43, and the Wall Street consensus target is $38.29. The stock closed Tuesday’s trading at $27.30 a share.
Energy Transfer Partners
This company merged with Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.
The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.
The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.
Energy Transfer unitholders receive a massive 12.62% distribution. Baird has a $22 price target, while the consensus target is $24.26. The shares closed most recently at $17.91.