Oil and Gas Production-Distribution Winning Overview

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Oil and Gas Production and Distribution Report offering a timely review of the sector to serious investors and industry executives at Wall Street Transcript has recently published. This 76 page 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: Master Limited Partnerships – MLPs v. The Broader Market – Canadian Pipeline – Natural Gas Growth – The Integrated Gas Space – Rebound in MLP Prices – Appeal for Long-Term Investors – Natural Gas-Fueled Transportation – Decrease in Marginal Cost of Production

Companies include: EOG Resources (EOG); Energy Transfer Partners (ETP); Lion Energy Corp. (TSX.V-LEO); Natural Gas Services Group (NGS); Newfield Exploration (NFX); Pembina Pipeline (PIF-UN.TO); and Suburban Propane (SPH); , Plains All American Pipeline LP (PAA); Apache (APA); Approach (AREX); Boardwalk Pipeline Partners (BWP); and many more

In the following brief excerpt from the 76 page report, John D. Edwards discusses the outlook for the Energy sector and for investors.

JOHN D. EDWARDS, CFA joined Morgan Keegan in October 2006. As First Vice President, he follows the energy infrastructure master limited partnerships. Prior to joining Morgan Keegan, Mr. Edwards was a Managing Partner of Vektor Investment Group, LLC, where he consulted on energy infrastructure projects and real estate development. He also worked with Deutsche Bank Securities as a Vice President and Senior Analyst covering natural gas pipelines and as an Associate Analyst covering automotive suppliers.

Mr. Edwards began his career in the energy industry with Edison International, where he worked in regulatory finance, M&A, project finance and business development. He received his B.A. from Occidental College in Los Angeles and an MBA from California State University, Fullerton. He is also a member of the Financial Analysts Society of Houston.

TWST: What type of growth should investors expect from this space? What type of total returns?

Mr. Edwards: We are forecasting approximately 6% distribution growth for 2010. Thus, combined with yields averaging approximately 8%, even without further declines in the cost of capital, we are looking for mid-double-digit returns over the next year, which, considering the risk in MLPs relative to the broader economy, we find attractive.

TWST: What’s the level of interest in this space?

Mr. Edwards: We continue to believe that every investor should have some exposure to the sector, and the reason for that is we still look at it as a sector that is stable. It does not have a strong correlation to other asset classes, and it’s generally commodity price agnostic. It tends to do very well when times are difficult, and so it’s a very good portfolio diversification tool. It offers investors yields while they wait, and we still think there is a valuation improvement both from a distribution standpoint as well as from a cost of capital standpoint. Thus, we expect MLPs are likely to outperform the broader market.

TWST: Where should investors be looking? What names are at the top of your list?

Mr. Edwards: We continue to believe that investors should anchor an MLP portfolio keeping in mind the long term. So we still believe large caps, investment-grade names that have a large interconnected footprint that gives them a competitive advantage, access to capital, an investment-grade rating, visibility to distribution sustainability and growth by way of solid distribution coverage ratios, and low commodity risk exposure – all of those are things that investors should look for. Granted, this year the smaller caps in the capital market recovery have performed a whole lot better, but if you look at it from a very long-term point of view, we still think investors ought to anchor with the more secure names. And if you look over the last two years, those companies with a lower-risk profile have actually performed better.

TWST: Who is at the top of that list of companies right now?

Mr. Edwards: We think the top of that list, we like Enterprise Products Partners (EPD). I think that’s a very strong name in that regard. We also like Boardwalk Pipeline Partners (BWP), and we also like Plains All American (PAA), Kinder Morgan Energy Partners (KMP), Enterprise GP Holdings (EPE) and Energy Transfer Equity (ETE). I guess those are some of the larger caps that we like. There are some mid-cap names that we like as well.

TWST: Let’s touch on the large cap. Are there any common characteristics here?

Mr. Edwards: We think, for instance, in the case of Enterprise Products, they have the largest market cap in the sector. They also have a very large integrated asset footprint. They have got a strong balance sheet or access to capital, and their assets are well positioned in terms of some of the emerging shale plays. They’ve got some terrific growth projects going on in both the Haynesville Shale and the emerging Eagle Ford Shale.

TWST: What about the other names you mentioned?

Mr. Edwards: Boardwalk Pipeline Partners, they don’t have a huge backlog of new projects coming on, but because they’ve just undergone a very large capital expansion program, all of those projects are coming online at the end of this year, early next year. And we think as a result, Boardwalk has above-average distribution growth prospects at least for the next couple of years, as those cash flows kick in and return cash flow to unitholders. So we think the risk-reward there is very good. Plains All American, the growth prospects are not quite as strong, but they are extremely well positioned.

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