Energy Adviser Elliott Gue to Moneynews: Master Limited Partnerships Can Generate 'Huge' Yields

Friday, 31 May 2013 07:01 AM

By Glenn J. Kalinoski and David Nelson

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Master limited partnerships represent an option investors should consider, said Elliott Gue, editor of Energy & Income Advisor.

"A lot of them [are] involved in the midstream energy business, owning things like pipelines and storage facilities for oil and gas," Gue said in an exclusive interview with Newsmax TV.  (A master limited partnership (MLP) is commonly defined as a limited partnership that is publicly traded on a securities exchange. It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.)

"These companies have a history of consistently boosting their distributions over time. Some of them are boosting their distributions as much as a 15 or even 20 percent annualized pace."

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Editor’s Note: Put the World’s Top Financial Minds to Work for You

The business isn't as economically cyclical as the energy business as a whole, Gue said.

"If you own a pipeline, you don’t really care whether the oil moving through that pipeline is trading at $90 or $105 a barrel or $120 a barrel," he said. "You really only get paid a fee based on the volumes that move through that pipeline. It's more of a utility-type business."

Gue cited the boom in U.S. energy production, including the Bakken Shale in North Dakota and Marcellus Shale in Appalachia.

"All of the oil and gas production from these fields has to go somewhere, and there's just not enough pipeline capacity and storage capacity in all of these different areas to support the growth we're seeing in production," he said.

While Gue described the Keystone Pipeline as a political football, he said other pipelines are being developed throughout the U.S.

"Another trend that I'm seeing a lot is just expansions and reversals of existing pipelines," Gue said.

He mentioned the Seaway pipeline, which used to run from Houston north to Cushing, Oklahoma, which is a major oil delivery terminal.

"The problem is that 20 years ago, we were importing a lot of oil into the Gulf Coast and we needed to move it up to Cushing," he said.

"But now we're seeing a lot of oil in places like the Bakken Shale coming down to Cushing and there's not enough pipeline capacity to move it from Cushing back to the Gulf Coast refineries," he said.

"What they did is reverse that pipeline and expand it. So even without building a brand new pipeline, we were able to increase their pipeline capacity just by taking an existing pipeline, expanding it, and reversing the flow."

Yields available to investors can reach double digits.

"Typically, you'll definitely see some master limited partnerships paying out upwards of 10 percent," he said. "It's a huge yield. And some of those tend to be a little bit more risky, a little bit more commodity- sensitive," he said.

"But you'll also see others around the five to seven percent range, which really don’t have a lot of risk. They're in that traditional midstream energy business which is basically a fee-based business, basically a utility kind of a toll-taker business, rather than a commodity-sensitive business."

Editor’s Note: Put the World’s Top Financial Minds to Work for You


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