BreitBurn Energy Partners L.P. (BBEP), EV Energy Partners, L.P. (EVEP): Tempted By a Yield That’s Over 8%? Read This First!

Page 1 of 2

As an investor, you’ve likely found out the hard way that not all companies operating in the same sector offer similar risks or rewards. Sometimes your idea can be right, but you make the wrong stock selection, which can wreck your returns. That’s why it’s as important to pick the right stock not only to benefit from a long-term trend but also to fit within your risk tolerance.

One sector where there is a diversity of risk profiles is in the upstream oil and gas MLP space. While known for their high yields, it’s important that you don’t judge an upstream MLP by yield alone. That’s easy to do because as you can see from the chart below, these yields can vary significantly:

Company Yield
BreitBurn Energy Partners 10.50%
EV Energy Partners (NASDAQ:EVEP) 8.00%
LINN Energy (NASDAQ:LINE) 8.75%
Vanguard Natural Resources (NASDAQ:VNR) 8.75%
QR Energy (NYSE:QRE) 11.50%

What’s not obvious when looking at these yields is why there is any disparity at all. That’s why it’s important to drill down a little deeper into each company to see what sets them apart. Specifically, there are three important areas to look at in order to get a better idea of how safe and reliable those yields will be in the future.

Reserve mix
An oil and gas MLP is only as good as the reserves it has in the ground. These reserves play a key role in how much future margin each company can capture as its reserves are produced. As you can see in the chart below, reserve mix does vary significantly from one company to another:

Sources: Company Investor Presentations and Author Calculations

What’s pretty evident is that as an investor you have three choices. You could choose a liquids-focused company like QR Energy LP (NYSE:QRE), balanced producers like Linn Energy LLC(NASDAQ:LINE) and BreitBurn Energy Partners L.P.(NASDAQ:BBEP), or the natural-gas-heavy names like Vanguard Natural Resources, LLC (NASDAQ:VNR) or EV Energy Partners, L.P. (NASDAQ:EVEP). If you are of the opinion that natural gas price will be heading higher in the future, then you would enjoy more potential upside by investing in those companies with larger natural gas reserves. On the other hand, if you like balance in your life, then investing in a company with a balanced reserve mix makes sense.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!