An Income Producing Natural Gas Investment (CMLP)
Income investors
are frequently looking for high yield investments in the energy sector,
and the master limited partnership (MLP) is one of my favorite structures
to help investors meet that goal.An MLP is a common organizational
structure for oil and natural gas producers and offers investors a way to
reap the benefits of higher energy prices, but without a lot of risk.
Perhaps the best reason to consider a master limited partnership is the
cash distributions, which are similar to stock dividends. But often the
yield is better than what a stock can offer.
A relatively new
name in the MLP crowd is Crestwood Midstream Partners L.P. (NYSE:
CMLP). The stock currently yields 5.7 percent. The company is a
Houston-based partnership that used to be known as Quicksilver Gas
Services. The original company began operations in 2004 and went public
in August 2007. In October 2010, Crestwood Holdings - a partnership
between private equity firm First Reserve Corporation and industry
veterans led by CEO Robert G. Phillip - paid $701 million to take control
of Quicksilver Gas Services. It subsequently changed the name to the
current form.
Crestwood Midstream Partners is a natural gas
gatherer and processor. The company handles the "midstream" part of the
natural gas value chain - this means its partners get the natural gas out
of the ground and Crestwood takes care of the processing, storage,
marketing and transportation functions.
Crestwood is paid a fee to move the natural gas
along. While natural gas prices have hovered around $4 per thousand cubic
feet on the New York Mercantile Exchange (despite the extremely cold
winter that much of the country has been experiencing) midstream
operators such as Crestwood have fees that are less tethered to the
commodity price itself.
Over the last 12 months, the stock's share price
posted a 64.5 percent gain. By way of comparison over the same time frame
the iShares Dow Jones U.S. Oil and Gas ETF (NYSE: IEO)
rose by less than half as much, or only 28 percent.
***Crestwood Midstream currently operates about
320 miles of natural gas pipeline systems with a high-capacity
compression system to move the gas. Its downstream partners include
Chesapeake Energy (NYSE: CHK), Conoco Phillips (NYSE:
COP) and Devon Energy (NYSE: DVN). All its
operations are in the Barnett Shale geologic formation in north Texas,
the largest natural gas-producing field in the United States.
Recently the company expanded its credit line for
future expansion and outsourced its back-office operations. Now it
appears that expansion and diversification are being planned.
***In January, Crestwood Midstream announced a
10.3 percent increase in its quarterly cash distribution, to $0.43
(effective this month) bringing the annual yield to 5.7 percent.
For the third quarter of 2010 (operating as
Quicksilver Gas) the company reported a 71 percent year-over-year
increase in net income, and a 46 percent increase in distributable cash
flow.
Crestwood Midstream will report year-end results
today, Tuesday, February 22. Analysts polled by Thomson Reuters expect
revenue growth of 43 percent in the fourth quarter, and full year
revenues to rise by 23 percent to $113 million. Expected earnings per
diluted share should be $0.39 in the fourth quarter, but are expected to
drop by 4 percent on an annual basis, to $1.23.
The partnership has a market cap of around $890
million.
Dividend-paying stocks are a necessary part of
every portfolio, whether in the form of cash distributions or pure
dividends. You can find my special
report featuring dividend-paying stocks here.
Disclosure: NONE
